Guidance

Section 9: Rent rebate subsidy limitation

Published 21 April 2021

Introduction

1200. Rent rebate subsidy limitation (RRSL) applies to LAs in Wales. Rent rebate subsidy limitation was introduced to give LAs an incentive to control expenditure and the level of rent increase. When a LA increases its average weekly rent above a limit set in Wales by the Welsh government, it will receive subsidy on rebates up to the limit and receive reduced HB subsidy on all HB rent rebate expenditure above the limit rent.

1201. RRSL applied to LAs in England until 31 March 2020. From 1 April 2020, the government directed the Regulator of Social Housing to apply its rent standard to both LA registered providers and private registered providers (the vast majority of which are housing associations).

1202. From 1 April 2020, the Department for Work and Pensions disapplied the RRSL scheme in HB subsidy for England only following the introduction of the new rent standard, as notified in circular HB S11/2019 revised. The new rent standard for the first time regulates LA rent increases in the same way as other social rented sector rents. The Ministry of Housing, Communities and Local Government will no longer be issuing LAs with Limit Rent figures, as it has done in previous years.

1203-1209

Data collection

1210. In Wales, the responsibility for collecting base data and calculations necessary to implement rent rebate subsidy limitation also changed in April 2015. The rent information used to be based on the Guideline Rent system which was an integral part of the Housing Revenue Account Subsidy (HRAS) system. The based data used within rent rebate subsidy limitation was formerly collected by the Welsh Government directly from the eleven stock retaining LAs HRAS claim forms.

1211. In April 2015, Welsh LAs exited the HRAS system, became self-financing and at the same time implemented the new Welsh Government Policy for Social Housing Rents. This meant LAs were no longer required to submit HRAS claim forms to the Welsh Government each year.

1212 . Consequently, new arrangements were introduced to enable the DWP to collect the base data directly from LAs in Wales from April 2015. Changes were also introduced to the rent rebate subsidy limitation arrangements to facilitate the move from the former Guideline Rent system to the new Policy for Social Housing Rents.

1213. DWP revised the Statement of LA claimed entitlement to Housing Benefit Subsidy (form MPF720C) to ensure the appropriate data is collected directly from LAs for the calculation of rent rebate subsidy limitation.

1214. The Limit Rent is now calculated by the Welsh government each year using key outputs from the Policy for Social Housing Rents. The Welsh Government advises DWP of the Limit Rents each year.

1215-1219

Action where properties fall under the new Rent Standards in England

1220. In England, where properties fall under the new Rent Standard for which HB has been paid and subsidy has, or is to be claimed, as Housing Revenue Account (HRA) Rent Rebate the following action is required:

• at the point that either the LA or the Regulator of Social Housing identify rent has been set by the LA that is not compliant with the Rent Standard, the LA must assess the impact of this on any affected HB claims, and recalculate HB assessments
• for the purposes of claiming HB subsidy, any resulting overpayment as a direct result of a non-compliant rent being charged for LA housing stock under the new Rent Standard will need to be calculated and classified as a ‘technical overpayment’ for either the current year or previous year, as appropriate

1222-1224

Average weekly rent (Q)

1225. ‘Rent’, in relation to a dwelling, means the total of the payments in respect of the dwelling specified in regulation 12(1)(a) of the Housing Benefit Regulations, other than a payment specified in regulation 12(1)(e), i.e. payments of, or by way of, service charges, payment of which is a condition on which the right to occupy the dwelling depends.

Rent rebate subsidy limitation calculations for LAs in Wales

1270. LAs need to make a comparison between the subsidy limitation rent and the weekly limit rents to establish whether they will be liable for a deduction. The weekly limit rents for the relevant year are contained in Appendix F. The subsidy limitation rent calculation, together with the deduction from subsidy calculation, is described in the following paragraphs.

Subsidy limitation rent calculation

1271 An LA in Wales will be liable to a subsidy deduction when O + P is less than Q, when:

• O for 2020 to 2021 is the amount specified in column 1 of Appendix F which is the total of “O” for 2019 to 2020 and “P” for 2019 to 2020

• P for 2020 2021 is the amount specified in column 2 of Appendix F

• Q is the average weekly rent for a dwelling for the LA for the relevant year (section 1275 below)

1272-1274

Calculation of Q

1275. The average weekly rent for a dwelling for the LA for the relevant year is calculated by:

i. dividing the total rent charged for all dwellings in the HRA in the relevant year by

ii. the total number of weeks for which rent was charged for all dwellings in the HRA in the relevant year^{[footnote 1]}

Note: Void dwellings are excluded from the calculation. A ‘void dwelling’ means a dwelling that is unoccupied.

Example

An LA has 3 HRA dwellings.

Rent is charged for 52 weeks on property 1, 46 weeks on property 2 and 48 weeks on property 3.

Add the 52 weeks, 46 weeks and 48 weeks.

This produces 146 weeks.

Dividing the total rent charged for the relevant year for example £10,000 by 146 weeks produces an average weekly rent of £68.49.

1276-1279

Amount of deduction from subsidy

1280. The amount of the deduction from subsidy referred to in Article 20A(b) should be calculated as follows:

Step 1

Divide the amount of rebates granted in the relevant year in respect of dwellings in the HRA by the income for the relevant year from rent (including rent remitted by way of rebate) in respect of such dwellings.

Step 2

If the result of Step 1 does not exceed 0.574 (the rebate proportion in Wales for 2020 to 2021. This may change annually depending on the proportion of HRA expenditure compared to rental income):

1. Deduct (O + P) from Q.
2. Divide the result of 1 by Q.
3. Multiply the amount of the subsidy (apart from any deduction to be calculated under Schedule 4A) by the result of 2.

If the result of Step 1 exceeds 0.574 (the rebate proportion in Wales for the relevant year):

1. Deduct (O + P) from Q.
2. Divide the result of 1 by Q.
3. Divide the rebate proportion for Wales, that is 0.574 by the result of Step 1.
4. Multiply the result of 2 by the result of 3.
5. Multiply the amount of the subsidy (apart from any deduction to be calculated under Schedule 4A) by the result of 4.

1281-1289

Legislation

1290. A deduction will be made where the subsidy limitation rent for the relevant year is above the weekly rent limit specified in Part 5 (Wales) of Schedule 4A to the Income-related Benefits (Subsidy to Authorities) Order 1998 (1998/562) as amended by the Income-related Benefits (Subsidy to Authorities) Amendment Order (SI 2020 No 976).

1291-1299

Derogations

1300. DWP Ministers are prepared to consider granting full or partial exemption from rent rebate subsidy limitation for the relevant year. Where a LA can demonstrate that, due to exceptional and unforeseeable circumstances outside of its control they needed to set for the relevant year:

• the aggregate of its average weekly rent above the level at which rent rebate subsidy limitation applies (in the amending Subsidy Order (SI 2020 No 976), and
• they would face significant, or complex financial difficulties, in the relevant year in its HRA without a derogation

1301. Applications should be submitted to Welsh Government in the first instance. Final decisions will be made by DWP Ministers based upon advice from Welsh Government and DWP, which will place the application in the full subsidy and policy context.

1302-1329

Queries

1330. If you have any queries concerning the content of this section, contact:

Local Authority Partnership, Engagement and Delivery division

Email: [email protected]

1331-1339

1. Please note: rent free weeks should be included when calculating the number of weeks for which rent is charged. For example, an LA may charge rent for 50 weeks but allow 2 rent free weeks. For the purposes of calculating the average weekly rent the 2 rent free weeks should be included in the calculation. So instead of using 50 weeks, 52 should be used. ↩