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ITEM EX8

EXECUTIVE - 7 APRIL 2004

SUPPORT FOR KEY WORKER HOUSING

Report by Head of Sustainable Development

Introduction

  1. This report describes detailed proposals for taking forward this element of the Local Public Service Agreement (the Local PSA) through the provision of loans to key workers under joint arrangements with the City Council and a housing association. The basis of this experimental project is that the two councils would provide loans to their own key workers to help them purchase a property on the open market. The report defines the categories of workers who could be eligible, outlines the employment implications and explains the arrangements with the selected housing association.

    2. Basis of the Scheme

  2. The Office of the Deputy Prime Minister and the County Council signed the Local PSA on 28 February 2003 with the intention of further improving services to local people that the County Council provides. The County Council agreed to use its best endeavours to achieve a number of enhanced performance targets (set out in Schedule 1 to the Local PSA). One of these (target 11) contains a target of 22 homes whose purchase by a key worker has been given significant financial support by the County Council and/or Oxford City Council in the form of a loan (repayable when the home ceases to be occupied by a key worker) that exceeds 20% of the home’s market value when purchased and which is not reimbursed by the Government or a public sector body. Achievement of the target will attract related performance reward grant from the Government equal to the amount of the loans. There is also an interim performance target of 14 homes for the period 1 April 2003 to 31 March 2005.

  3. The achievement of this target has under Schedule 3 of the Local PSA been assisted by a Pump Priming Grant from the Government of £118,504 to pay for legal services, research and marketing the scheme. A PSA Project Implementation Group has been established in order, amongst other things, to oversee how this money is spent. It has already been agreed that £15,000 is to be used for research into key worker housing needs. The Local PSA states that it must be spent in accordance with Schedule 3 or as otherwise agreed with the Government to assist in the achievement of the enhanced performance.

  4. It is proposed that the County Council should provide loans to its own key workers (being employees who come within the key worker definition – see further below – and are eligible by virtue of a selection process) to help them purchase a property on the open market. Each loan could be as much as £45K and will, as a proportionate share of the equity rather than as a fixed sum, be secured by way of a second mortgage. The employee will have obtained a first mortgage with a normal commercial mortgage provider for the remainder of the purchase price and will be responsible for the payment of all other fees and disbursements (and any balance of the purchase price) connected with the purchase of the property.

    5. Statutory Powers

  5. It is considered that the County Council may lawfully enter into the various arrangements involved in the Scheme using its general powers in relation to the appointment of staff contained in the Local Government Act 1972 and the general provisions in Part I of the Local Government Act 2000 ("the well-being powers").

    6. Financial, Tax, National Insurance and Risk Implications

  6. The loans that will be provided for employees give rise to a ‘benefit’ that is considered to be taxable by the Inland Revenue. As an example, an employee taking out a loan of £45K who pays the basic rate of tax at 22% will have to pay £495 extra income tax for each year that they have the loan. Individual employees will have to bear the cost, which will reduce the benefits of the scheme to them.

  7. For similar reasons, the County Council will have to pay additional employer-only National Insurance (NI) contributions. On a loan of £45K, this will be £288 per year. It is proposed that service directorates whose employees receive loans should pay these additional NI costs. Service directorates should benefit from the Scheme which will ease their recruitment and retention difficulties.

  8. This scheme is broadly intended to run on a 50:50 basis with Oxford City Council. 22 loans are needed to meet the target in March 2006 and the loans can be for up to £45,000. Thus, both Councils can broadly expect to make 11 loans and both will need to broadly borrow about £495,000 by March 2006. Other outcomes are possible as individual loans may be for less than £45,000 and if one authority cannot fill their broad quota of 11 loans, the other may take up the slack so that the 22 loans target is met. Having loans that are as close as possible to the £45,000 limit will minimise management costs whilst meeting the target. If the target is met, a ‘Performance Reward Grant’ (PRG) of £990,000 will be paid and this can be used to further develop the scheme or to repay the borrowing or for other purposes. If there are less than 22 loans in place, the amount of PRG will be reduced. If there are less than 14 loans in place in March 2006, no PRG will be paid. The County Council has already included the costs of building up to borrowing £495,000 in March 2006 in its budget for 2004/05 and in the forward plan for 2005/06.

  9. The main financial risk of this project is if there are not 14 loans in place in March 2006 and no PRG is paid. This would remove the options such as developing the scheme or repaying borrowing costs. Another risk is that if the price of property falls, the value of the share of the equity in the various homes could also fall. Falling property prices would indicate that housing was becoming more affordable, so reducing the need for the scheme. It may also mean that staff may no longer have sufficient funds to repay their first mortgages, and therefore cannot repay the loan. Over the long term however, property prices seem unlikely to fall so this risk is considered to be acceptable. Other risks to property are to be minimised by ensuring that there is buildings insurance on each property each year.

  10. Other events that affect the Councils staff or conditions generally and steps that are taken to make the scheme more workable all have risks. For example, it is intended to allow people who leave a qualifying job two years to come back into public sector employment. This is in line with the new provisions as set out in the Government’s Key Worker Living initiative (see paragraph 17 of this Report). This may make it more difficult to precisely meet the target of 22 loans in March 2006. These risks can be minimised by aiming to have slightly more than 22 loans in place by March 2006.

    11. Agreement with Oxford City Council

  11. The County Council and Oxford City Council will enter into an agreement reflecting their ‘partnership’ as the local authorities specified in target 11 of the Local PSA to provide significant financial support to purchases by key workers. This is the indicator against which performance will be measured.

    12. Agreement with Keystart Housing Association

  12. It is anticipated that there will be an agreement between the Councils and the registered social landlord Keystart Housing Association, one of Oxford City Council’s approved partners and a recognised provider of social housing experienced in the area of key worker housing and the Starter Homes Initiative. The precise terms of the agreement are to be negotiated but in principle it is expected that they will be appointed to provide a selection and housing management service in respect of those key workers to whom financial support may be given.

    13. Management Costs of the Scheme

  13. The costs of legal fees, marketing and administration services payable to Keystart Housing Association are estimated at this stage to be between £46,000 and £68,000 over the two year period to the Local PSA deadline at the end of March 2006. These costs will be incurred to provide loans for both City and County Council staff, broadly on a 50:50 basis. All of these costs will be met from the Pump Priming Grant mentioned above that has already been paid.

    14. Exemption from the Contract Procedure Rules

  14. Para 7.5 of the Contract Procedure Rules in section CC of the County Council’s Constitution state that for all contracts of £25,000 and above, written quotations for the goods or services must be obtained.

  15. Because of the nature of the Scheme it has not been possible to pinpoint the exact costs to the County Council but if the costs were to err towards the higher figure of £68,000 (ie £34,000 for the County Council) then the provisions of para 7.5 of the Contract Procedure Rules would not have been met.

  16. Paragraph 3.2 of the Rules allows for exemption from the tendering and quotation requirement, and this is recommended in this case, on a precautionary basis, for the following reasons:

    • Keystart Housing Association are recognised leaders in the field of housing for key workers. They have secured the position of ‘Zone Manager’ by the Housing Corporation for the purposes of allocating the recently announced new funding for key worker housing in Berkshire, Oxfordshire and Buckinghamshire.

    • It had not been anticipated that the costs would be of such an order as would require a quotation or tendering process and dealings with Keystart have therefore been on the basis that there would be no such process, which has accordingly not been built into the timetable.

    • The Local PSA was signed in February 2003 and target 11 is now more than a year behind schedule, mainly due initially to there being no one in post to drive the project. There is a need to progress the Scheme as quickly as possible in order to launch the Scheme officially in May. Further delay could result in the loss of money and would not show either authority in a particularly good light.

  1. The Solicitor to the Council and the Head of Finance have assessed the proposed exemption and are satisfied that this would be appropriate, on the basis that the threshold will not be breached by a substantial amount, if at all; and that the agreement with Keystart can ensure that there is no appreciable risk to the Council in the arrangement and in particular that costs can be controlled.

    2. Definition of ‘key worker’ for the purposes of the Scheme

  2. The Government provided a definition of ‘key workers’ for the purposes of its Starter Homes Initiative, a scheme to aid certain key workers (teachers, nurses, fire fighters) to buy a home. The schemes that have now replaced the Starter Homes Initiative came into effect on 1 April. Now known as Key Worker Living initiatives, these are:

    • Homebuy – which provides an equity loan of at least 25% of the property value up to a limit of £50K;

    • Intermediate renting – a rent between social and open market rates;

    • Shared ownership on new build schemes, where the purchaser buys a share of the equity from a minimum of 25% and pays rent on the balance.

  1. A full list of eligible key worker groups has been announced by the ODPM and includes (in relation to the County Council):

    • Teachers in schools and in further education and sixth form colleges

      • Social workers, educational psychologists and occupational therapists employed by local authorities

      • Whole-time junior fire officers and retained fire fighters (all grades) in some fire and rescue services (currently only in Hertfordshire).

  1. The Project Implementation Group has agreed that the Scheme should in the main be directed at the above professions and also those employees who are not eligible for the schemes outlined above and where the County Council has problems recruiting and retaining staff. A survey of the directorates indicates that the following jobs/professions are particularly difficult to recruit:

    • Transport planners with development control experience

    • Experienced land use planners

    • Engineers

    • Adult & Community Learning staff, particularly officers/tutors for Early Years and Adult Basic Skills

    • Youth workers

    • Social & Health Care Support Workers

    • Care Managers

    • Fire fighters

  1. It is envisaged that the Scheme will be directed at these groups and that regular monitoring will provide an indication of any changes over time. However, this should not preclude potential or existing staff from applying if they are not in, or are applying for, one of the jobs listed above - Keystart Housing Association may be able to help them with another, alternative scheme.

  2. Oxford City Council has also carried out a similar exercise to determine where it has particular recruitment and retention problems.

  3. There are believed to be no legal impediments to a local authority identifying its own key workers so as to direct financial aid to help with housing costs. The selection process and criteria will be fair and non-discriminatory.

  4. Unison has and will continue to be involved in the identification and selection of posts for the purposes of the Scheme.

  5. It is important that the reasons for selecting the posts for the purposes of the Scheme is fully explained in any literature, including marketing material, information booklets, job packs and on the County Council’s web site.

    6. Marketing and Launching the Scheme

  6. Keystart Housing Association have prepared marketing material in the form of a booklet and posters. They are also able to produce information as part of a pay slip. Keystart Housing Association staff are also willing to visit places of employment to promote the scheme and answer questions from employees.

  7. It is envisaged that the Scheme will be officially launched in May.

    8. RECOMMENDATIONS

  8. The Executive is RECOMMENDED to:

          1. approve the Scheme as described in the report;

          2. confirm the definition of ‘key worker’ for the purposes of the Scheme as referred to in the report;

          3. note that County Council directorates will be required to pay for the costs of additional employer-only National Insurance contributions arising from the Scheme as required by the tax authorities;

          4. authorise such legal arrangements with Oxford City Council and Keystart Housing Association and any other relevant parties as may be necessary to give effect to the matters referred to in the report, and any security documentation relating to the properties to be purchased as homes by key workers, all on such terms as may be agreed by the Head of Sustainable Development in consultation with the Solicitor to the Council;

          5. approve the exemption of the legal arrangements with Keystart Housing Association from the quotation and tendering processes contained in Contract Procedure Rules 7 to 12 for the reasons set out in the report.

 

CHRIS COUSINS
Head of Sustainable Development

Background papers: Local Public Service Agreement, February 2003

Contact Officers:
Dawn Pettis, Affordable Housing Project Leader, Tel 01865 816082
Robert Austin, Legal Consultant , Tel 01865 815907
David Illingworth, Financial & Business Planning Consultant, Tel 01865 815352

March 2004

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