Communities and Local Government CommitteeLetter to the Clerk of the Committee from the Executive Director of Finance, Circle

I am writing in response to the inquiry into the Regulation Committee of the Homes and Communities Agency by the Communities and Local Government Select Committee, and the session which took place last Monday.

During the session with Mr Julian Ashby, Chair of the Regulation Committee of the Homes and Communities Agency, Simon Danczuk MP raised some concerns about the liabilities of South Anglia Housing, one of the Registered Providers (RPs) which form Circle Housing Group. In order to address these concerns, I have written to Mr Danczuk and Mr Ashby to provide some context and explanation around our liabilities and assets. I would be grateful if you could make this information available to the other members of the Committee.

Circle Housing Group consists of nine housing association partners, including South Anglia Housing Limited. The Group consistently delivers a surplus in excess of £20 million, delivers operating margins of 27%, which are considerably above the sector benchmark, and has committed and available private funding of £550 million. This affords substantial financial strength to all members of the Group, including South Anglia Housing Limited.

South Anglia had net current liabilities of £5.8 million as at 31 March 2012. This position arises because South Anglia’s debt, which has wholly funded the business alongside public sector grant, is classified in the accounts as being repayable within one year. This is the contractual position with the Circle Housing Group’s borrowing vehicle (Circle Anglia Treasury Limited). However, this is not the intended repayment profile. It is expected that loans will be repayable in line with the long term repayment profile of Circle Anglia Treasury Limited.

South Anglia has total net liabilities, which have been funded by debt, as it has made cumulative net deficits. This is a typical position for a Large Scale Voluntary Transfer organisation like South Anglia where there has been significant planned investment to bring Local Authority stock that has been transferred to it up to an acceptable standard. In addition, the Group and South Anglia Housing Limited made a strategic decision to deliver a significant part of the Group’s historic development in South Anglia Housing Limited. Development of circa 1,800 new affordable homes by South Anglia has also put pressure on its margins in the early years. However, the long term financial forecasts demonstrate that the debt will be repaid in an acceptable timeframe and loan covenant ratios are being achieved.

Investment has been made with regard to South Anglia’s stand alone financial strength, and we forecast that it will repay its debt within the life of its financial plan. Our overall financial strength as

a Group is consciously used to enable the deficits to be made in the early years in addition to providing protection against any variations in economic conditions.

I hope this addresses the concerns raised in the session. If you have any queries or would like further information, please do not hesitate to contact me.

Yours sincerely,

24 July 2013