HCA ANNUAL REPORT AND FINANCIAL … · Homes and Communities Agency (HCA), its main objectives and strategies and the principal risks it faces. It is divided into three sections:

HOMES AND COMMUNITIES AGENCY

ANNUAL REPORT AND FINANCIALSTATEMENTS 2016/17

Homes and Communities Agency


Annual Report and Financial Statements 2016/17

Presented to Parliament pursuant to paragraphs 11 and 12 of Schedule 1 to the Housing and Regeneration Act 2008

Ordered by the House of Commons to be printed 29 June 2017

HC 113


2 Annual Report and Financial Statements 2016/17

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Annual Report and Financial Statements 2016/17 3

CONTENTS

The Performance Report

Overview 4

Who we are and what we do 5

How we are managed 6

Chairman and Chief Executive’s report 10

Key performance indicators 15

Other information 18

Sustainability 18

Going concern 24

The Accountability Report

Corporate governance report 25

Board Members’ report 26

Responsibilities of the Accounting Officer 28

Governance statement 29

Remuneration and staff report 45

Parliamentary accountability and audit report 56

Certificate and Report of the Comptroller 58

Financial Statements 60

Getting in Touch 112

This report aims to give a snapshot of our work, which is covered in more detail on our website at www.gov.uk/hca



THE PERFORMANCE REPORTOVERVIEW

The performance report provides information on the Homes and Communities Agency (HCA), its main objectives and strategies and the principal risks it faces. It is divided into three sections: Overview, Key performance indicators and Other information.

Overview

This section is designed to give the reader sufficient information to understand HCA, its purpose, the key risks to the achievement of its objectives and how it has performed during the year.



THE PERFORMANCE REPORTWHO WE ARE AND WHAT WE DO

The HCA is the Government’s housing, land and regeneration Agency for England, excluding London, and the regulator of social housing providers for all of England. In London, responsibility for housing is devolved to the Greater London Authority (GLA).

We are a non-departmental body sponsored by the Department of Communities and Local Government (DCLG). We work closely with colleagues in DCLG to ensure delivery of ministerial policy objectives.

We are subject to Government Spending Controls and we work with DCLG to establish a transparent and robust annual budget within the context of an applicable multi-year Spending Review (SR).

Our statutory objectives as defined by the Housing and Regeneration Act 2008 are to:

■■ improve the supply and quality of housing

■■ secure the regeneration or development of land or infrastructure

■■ support in other ways the creation, regeneration or development of communities or their continued wellbeing

■■ contribute to the achievement of sustainable development and good design, with a view to meeting the needs of people

■■ facilitate the exercise through its Regulation Committee of the functions conferred on the HCA as the Regulator of Social Housing.

The Housing and Regeneration Act 2008 (as amended by the Localism Act 2011) sets out the HCA’s statutory objectives in respect of regulation of social housing providers. As regulator we promote a viable, efficient and well-governed social housing sector able to deliver homes that meet a wide range of needs.

Our role

Our role is changing. We have a strong track record of achieving annual housing and land programme targets but we recognise we will need to go much further in future to create a modern, stronger housing market.

So we are changing our business to adopt a more active, market-led approach, led by our new Chief Executive, who has a strong track record of transforming public bodies. We will intervene in failing local markets to get homes built now and invest in increasing longer term supply.

Our work and our people will be found in ambitious places across the country. We will connect public ambition with private enterprise to develop creative solutions that encourage development, stimulate growth and change places.

We will deliver a package of measures that will help the Government to meet its objectives of driving up housing supply and increasing home ownership. We will do this through:

■■ Building more homes across all housing tenures

■■ Increasing the housebuilding capacity through market diversification, supporting more small and medium-sized builders to deliver homes

■■ Finding new forms of housing supply, for example through housing associations, the private rented sector and institutional investment

■■ Using our land, investment and expertise to increase the scale and pace of housebuilding

■■ Helping to tackle the skills gap and promoting quality and sustainability of homes by encouraging greater use of modern methods of construction (MMC)



THE PERFORMANCE REPORTHOW WE ARE MANAGED

Our targets over the current Spending Review period are to:

■■ Deliver 67,500 new homes for Affordable Rent, Rent to Buy and Shared Ownership

■■ Deliver 33,500 homes for Affordable Rent through the existing Affordable Homes Programme 2015-18

■■ Acquire, prepare and sell brownfield public sector land with capacity for 25,000 Starter Homes

■■ Release enough public sector land for 36,000 new homes

■■ Support for new types of house building through the Home Building Fund. The long term loan fund supports the delivery of larger sites, infrastructure and site preparation. The short term loan fund provides support to small and medium sized enterprises, custom builders and innovators to build housing now. The fund as a whole will deliver up to 200,000 new homes.

■■ Directly commission up to 4,000 homes across four pilot sites

How We Are Managed

In accordance with good practices of governance, the Board has established committees to which it delegates appropriate responsibilities: audit and risk; credit and financial risk; programmes and projects; and nominations and governance.

We are governed by a Board appointed by the Secretary of State for Communities and Local Government, which is responsible for ensuring we carry out our functions effectively. Our regulatory responsibilities are exercised through an independent Regulation Committee.

Members of both the Board and the Regulation Committee are obliged to act in accordance with the Agency’s code of practice and a register of members’ interests is available for inspection on our website. We are committed to processes that provide transparent documented evidence to record and inform the management of public money.

Our Board is led by our Chairman, Sir Edward Lister, and is responsible for shaping our priorities, providing effective strategic leadership, and ensuring that we carry out our functions effectively.



For more detail on how we are managed and governed, please visit GOV.UK/hca



THE PERFORMANCE REPORTHCA BOARD AND EXECUTIVE TEAM

Chairman, Sir Edward Lister

Sir Edward joined the HCA Board in June 2016, bringing considerable experience of house building, development finance, infrastructure and regeneration. From 2011-16, he was London’s Deputy Mayor of Policy and Planning and Chief of Staff at the Greater London Authority.

Previously, as Conservative Leader of Wandsworth Borough Council from 1992-2011 and as the longest-serving council leader in the country, Sir Edward made Wandsworth the most successful value-for-money local authority in the country. In 2016, Sir Edward was appointed as Senior Advisor to the Regeneration and Investment Organisation within UK Trade and Investment.

HCA Board Members (non-executive)

■■ Julian Ashby

■■ Keith House

■■ Dr Ann Limb

■■ Niall Mills

■■ Anthony Preiskel

■■ Stephen Bell – Joined February 2017

■■ Richard Blakeway – Joined February 2017

■■ Simon Dudley – Joined February 2017

■■ Teresa O’Neill – Joined February 2017

Audit and Risk Committee

The committee works with the Board on risk control, governance, financial control and statutory reporting. The committee is authorised by the Board and the Regulation Committee to investigate any activity within these areas.

Audit and Risk Committee Members

■■ Stephen Bell, Chair

■■ Julian Ashby

■■ Niall Mills


■■ Teresa O’Neill

Programmes and Projects Committee

The Programme and Projects Committee oversees the Homes and Communities Agency’s investment and land programmes and projects, as well as certain corporate issues.

Programmes and Projects Committee Members

■■ Sir Edward Lister, Chair

■■ Richard Blakeway

■■ Simon Dudley

■■ Keith House

■■ Niall Mills


■■ Nick Walkley, Chief Executive (or nominated deputy)

■■ Chantal Geall, Chief Risk Officer (or nominated deputy)



Credit and Risk Committee

The Credit and Risk Committee supports the HCA Board in their responsibilities for financial risk control in respect of the HCA’s financial investment programmes.

Credit and Risk Committee Members

■■ Anthony Preiskel, Chair

■■ Richard Blakeway

■■ Simon Dudley

■■ Niall Mills

■■ Nick Walkley, Chief Executive (or nominated deputy)

■■ Chantal Geall, Chief Risk Officer (or nominated deputy)

Executive Team

Chief Executive, Nick Walkley

Nick joined the HCA in March 2017, bringing years of experience of providing strong leadership and delivering housing and regeneration schemes. He was Chief Executive of Haringey Council for the past four years, having previously been Chief Executive of Barnet Council.

Nick led a major transformation of Haringey Council; restructuring the authority, streamlining management arrangements and stabilising high-risk services. Under his leadership, the Council attracted £1bn of funding into the large-scale regeneration of Tottenham, using a joint venture to maximise assets and deliver homes and growth.

Executive Team Members

■■ Bayo Dosunmu – Director of Strategy and Chief of Staff

■■ Richard Ennis – Executive Director, Finance and Corporate Services

■■ Chantal Geall – Chief Risk Officer

■■ Fiona MacGregor – Executive Director, Regulation

■■ Colin Molton – Chief Operating Officer

■■ Gordon More – Chief Investment Officer



THE PERFORMANCE REPORTCHAIRMAN AND CHIEF EXECUTIVE’S REPORT

Building more homes

Everybody has the right to a safe and secure home, and good housing underpins a strong economy.

There is a clear need for more homes, including affordable homes, as highlighted in the Housing White Paper. Housing is a priority for Government. We are now at crisis point; with the supply of homes not meeting demand. The Housing White Paper suggests that current build rates need to be between 225,000 and 275,000 homes per year.

We will invest through a varied package of measures that will see more homes being built faster, across a wide range of tenures.

Tailored Review

In 2016, DCLG carried out a Tailored Review of the Agency to look at ways to improve our efficiency, effectiveness and governance.

The Review concluded that we should play a central role in delivering more homes in England, while driving up the scale and pace of house-building across all housing tenures, including:

■■ Encouraging more competition and innovation, for example, by attracting new entrants, including small and medium-sized builders to diversify the home-building sector

■■ Supporting infrastructure so that capacity is unlocked more efficiently and speedily

In line with the Review’s recommendations, the Housing White Paper set out Government’s intention to relaunch the Agency as Homes England in 2017/18 and establish the Regulator of Social Housing as a standalone body. The regulator will also introduce fees from late 2017.

A strong year for performance

We are pleased to report that we have exceeded our corporate delivery targets set by the Government for the year ending 31 March 2017. Our achievements include:

■■ Significantly contributing to levels of home ownership, helping 40,271 households to own their own home through the Help to Buy: Equity Loan scheme

■■ Supporting the delivery of 22,858 affordable homes, of which 2,957 are for vulnerable and older people

■■ Supporting the private rented sector by delivering 2,000 homes for market rent through the Home Building Fund

■■ Unlocked land with the capacity for 42,808 new homes by investing in infrastructure

■■ Disposed of enough public sector land to provide capacity for a further 8,444 homes

■■ We have also helped to create 470,089 sq.m of employment floor space.

Key successes

As well as our existing work on delivering affordable housing and acquiring and disposing of land, we have expanded our investment activities through the introduction of the Home Building Fund.

In October 2016, the Government introduced the £3bn fund to increase housebuilding, which is available as both short and long-term loans to developers, targeting small and medium-sized builders in particular.

The fund amalgamates our previous investment programmes: Builders Finance Fund, Custom Build Serviced Plots Loan Fund, Housing Zones, Local Growth Fund (Housing Infrastructure) and Large Sites Infrastructure Programme, making it easier for developers to access finance. The fund provides short-term development finance to meet the cost of developing homes for rent or sale, and long-term infrastructure finance to help developers prepare land and put infrastructure in place to enable delivery of homes.



The fund has allowed us to expand the emerging Build to Rent sector in this country, making a different type of housing offer available to people, especially in cities outside of London. Dandara was the largest contracted single Build to Rent sector deal of 2016, with a commitment of £40m of mezzanine financing along with senior lender HSBC to deliver a £400m portfolio across key English cities. The deal is remarkable not only for its size but for its complexity because it provides 2,062 new high-quality rental homes on brownfield sites in three core city locations across England – Manchester, Leeds and Birmingham.

Delivering local priorities

As well as market-making, we have maintained strong partnerships with stakeholders and worked locally to deliver strategic projects and pipelines for housing. We are involved at all stages of the building and development process, from advising on planning and regulation compliance through appropriate funding to sale. We offer our partners a consistent, well-regulated and knowledgeable approach from a project’s inception through to completion.

Our expertise helps local partners across England to respond to local priorities – from making city centres attractive places to live in, to working with local communities to provide new and affordable homes or improve existing estates. This work is balanced alongside our strong commercial expertise, working with the private sector to market and sell land, open up development opportunities, and to identify opportunities for investors to fund development.

Successes include:

■■ A disposal to Magna Cosma, one of the world’s largest global automotive suppliers, which represents one of the most significant new overseas investments into the UK in the last 10 years. This disposal was achieved through the Telford Land Deal we have in the Midlands, which is a 10 year working arrangement between ourselves and Telford and Wrekin Council for our existing land holdings. The investment of £80m will deliver nearly 600 new jobs and is complimented by the disposal of other sites in the vicinity that will see nearly 500 homes completed this year and next.

■■ The development of Northstowe, in Cambridge, is well underway. We are working in partnership with Gallagher Estates to develop Northstowe which, once complete, will deliver up to 10,000 new homes and support infrastructure and community facilities. The first primary school is now open and the first homes in Phase 1 (which is land owned by Gallagher) are on site, with residents expected to move in later this year. Phase 2 (on HCA owned land) received planning permission earlier this year, and will deliver 3,500 new homes as well as a town centre, further schools, sports facilities and a southern link road which will connect into the guided bus way and the new Cambridge North Station.

■■ Targeted strategic acquisitions at York Central, with a total investment of £11.1m, have guaranteed our ongoing stake in the 35-hectare brownfield site. This site is a designated Housing Zone and York City Council’s main strategic priority, which will deliver up to 2,500 homes on completion. We acquired land from Network Rail and are working with them and the City of York Council and National Railway Museum to bring the site forward.

■■ A key acquisition at Montague Street, Digbeth, Birmingham has supported the work we have done with Birmingham City Council, by preparing sites for development as part of the regeneration around the forthcoming HS2. This site will be taken forward in line with the Council’s overarching Masterplan to deliver a high quality residential offer and to reshape the area as a creative quarter for the city.

■■ Work has successfully started on site at St Mary’s Allotment, a strategic site in Leicestershire. Through effective partnership working between the HCA, Leicester City Council, Westleigh, and Midland Heart, this scheme will now allow building to commence which will deliver 125 new homes.



THE PERFORMANCE REPORTCHAIRMAN AND CHIEF EXECUTIVE’S REPORT (CONTINUED)

Key to our work is supporting local priorities and places, and we are proud of some of the smaller schemes we have supported, through the administration of grant funding through the Shared Ownership Affordable Homes Programme (SOAHP) 2015-18 to schemes such as Clergy House in Bradford – a supported housing scheme of 18 self-contained apartments aimed at tackling homelessness; and Phoebe Cusden Supported Living Scheme – a £2m development of 11 flats for residents with disabilities in Reading, through the administration of grant funding through the Care and Support Specialist Housing Fund. This fund is designed to help older people and those with disabilities or mental health problems to live more independently.

The expanded Shared Ownership Affordable Homes Programme offers a wide range of ways to help people into home ownership, and provides support for those who are in need of affordable housing. It does this through offering a wider range of tenures including Affordable Rent, Shared Ownership and Rent to Buy, which will help meet the housing needs of people in different circumstances and at different stages of their lives.

As ever, there are too many successes to list in one report, but we hope that these provide a flavour of the different scales of schemes that we are involved in.

To further support local priorities, we have continued to work with local partners in support of the government’s devolution agenda; aligning our own assets and delivery of programmes to meet ambitions for local growth where possible. This includes supporting economic growth through the release of land for employment and commercial uses. Where joint asset boards and land boards have been established as part of these devolution agreements, HCA Board representation allows the identification of opportunities to unlock strategic sites, ensuring a focus on housing delivery. We will continue to work with partners to overcome issues on key sites, and intervene in the market where housing need is greatest.

A challenging year at the HCA

Although we can reflect on our many successes this year, we must also acknowledge the challenges that we have faced.

At the start of the year, we underwent a full restructure to meet efficiency targets set by Government, which was a challenging time for colleagues across the organisation.

We would like to thank all colleagues for their dedication and commitment to delivery during a difficult period of change and uncertainty. They have shown resilience, and passion for delivering housing, and this is reflected in the achievement of our targets.

It is important to recognise and reward talent and hard work and in December we held our annual Excellence Awards ceremony to celebrate success. The day was celebrated by a range of colleagues from across the business who inspired and impressed us all with stories of how their talent has made an impact on individuals, teams and communities. In addition to our internal awards ceremony, our work has been recognised by the industry, with the HCA Investment Team being awarded ‘PRS Deal of the Year’ at this year’s RESI awards for their work in the private rented sector, with their strong financial performance and innovation skills commended.

In August 2016, we were recognised at the Michelmores Property Awards, where we were awarded Residential Project of the Year for Quadrant Quay under our Development Agreement with the English Cities Fund, as well as Project of the Year for the £2m Science Park Centre in Exeter, where we have invested £650,000 to deliver infrastructure on site to open up land for development.

Furthermore, The Malings scheme was recognised as Supreme Winner at the Housing Design Awards 2016. This innovative development of 75 new homes is built on HCA-owned land and is the first phase of the creation of a new housing quarter to the east of Newcastle upon Tyne city centre.



We would like to take this opportunity to thank our previous Chief Executive Mark Hodgkinson and Chairman Kevin Parry for leading the organisation through the restructure and delivering an intensive change programme. Mark departed the HCA in March 2017 and Kevin left us in June 2016. We wish them the best of luck in their future roles.

We also extend our well wishes to the colleagues who left the Agency through the voluntary redundancy scheme at the end of March 2017. We are grateful for their years of service and their hard work in helping us to achieve our successes.

The Government tasked us with delivering 33 per cent efficiency savings over this Spending Review period, and to date we have delivered efficiency savings of circa 27 per cent, with some savings achieved in 2016/17 as a result of a voluntary redundancy scheme. The remainder is to be achieved in 2017/18 as part of ongoing savings resulting from the restructure.

Further savings of circa 13 per cent will be delivered in 2017/18 when the Regulator starts to charge fees to Registered Providers from October 2017.

Strengthening teams to deliver

We are in the process of delivering an internal change programme where we are creating a new set of values within the organisation, which will help colleagues to feel more empowered and take even greater pride in working at the HCA.

We have started and will continue to reposition ourselves to ensure that teams are equipped with the right skills and expertise necessary to effectively deliver the Government’s housing and growth agenda.

We have also recruited new members to the HCA Board and Executive Team, bringing together new skills to help us deliver our ambitious targets. As part of our drive to become more efficient and streamlined we have also reduced the number of direct reports to the Chief Executive.

Regulating the sector

The social housing regulator promotes a viable, efficient and well governed social housing sector able to deliver homes that meet a range of needs. As the sector grows and becomes more complex, we have ensured that our approach to regulation keeps pace with its risk profile.

Over the course of the year, the policy landscape in which we operate has seen changes. The introduction of the Housing and Planning Act 2016 has brought changes to our regulation and we have also seen the implementation of a one per cent reduction in rents for the sector in the Welfare Reform and Work Act 2016.

Our regulation has continued to support Registered Providers (RPs) to deliver new homes by helping maintain lender confidence. We have built on the revised regulatory framework and regulatory approach introduced in 2015; ensuring that we have sufficient assurance on a registered provider’s management of risk and compliance with our standards.

Managing risks

Through clear identification of key risks, we are continuing to enhance the Agency’s risk management framework and are developing our approaches for measuring, managing and monitoring risk so that they remain fit for purpose for our expanding remit.

Our primary portfolio risk reflects the housing sector concentration and investments in developers, registered providers and home owners. In the event of a market downturn, this portfolio, along with Agency’s land bank, would likely suffer impairments as land and house prices fall.

Our loan and equity portfolios give rise to material credit and market risk which reflects the challenging markets we are supporting and the risk appetite of the programmes we are delivering, whose primary aim is to deliver housing capacity.



THE PERFORMANCE REPORTCHAIRMAN AND CHIEF EXECUTIVE’S REPORT (CONTINUED)

Setting a new direction

This year, we will publish an interim corporate plan that will set out a new, more ambitious direction for the organisation as we move towards becoming Homes England. This plan will focus on four key strategies: funding, engagement, people and digital.

We will be consulting people from across the industry on our interim corporate plan to shape the purpose and priorities for Homes England. We are looking for new partners and new types of partnership – people with the passion, creativity and determination to redefine housing in this country.

We are excited at the possibilities within our grasp and determined to achieve a modern, stronger housing market.

Sir Edward Lister Nick WalkleyChairman Chief Executive and Accounting Officer



THE PERFORMANCE REPORTKEY PERFORMANCE INDICATORS

Our Financial PerformanceThe results for the year ended 31 March 2017 are set out in the Financial Statements on pages 60 to 110. Net expenditure for the year was £364m (2015/16: £238m) and total comprehensive expenditure was £305m (2015/16: £74m). The Group Statement of Financial Position shows net assets of £8.08bn (2016: £5.84bn).

The increase in net assets reflects increased investments associated with the Help to Buy scheme and loans associated with housing and related development.

As at the reporting date, the Agency has entered into the following financial commitments:

■■ £1,385m outline approvals to investments under the Help to Buy scheme;

■■ £1,149m of unconditional but undrawn loan and equity investments.

Outputs and financial measures

The Agency’s performance is managed by reference to financial and non-financial targets, within the constraints of programme and operational expenditure limits set by DCLG. Non-financial measures of the Agency are the number of housing starts and completions, the housing capacity of land disposed, the area of previously developed land reclaimed and the area of employment floorspace created. Outputs are shown below and compare results against targets.



THE PERFORMANCE REPORTKEY PERFORMANCE INDICATORS (CONTINUED)

HCA outputs 2016/17 (Unaudited)Housing Starts1 Housing Completions2

Target3 Outturn4 Target3 Outturn4

TOTAL (all programmes excluding Help to Buy)5, 6 .. 40,724 .. 30,999Help to Buy7 .. .. 30,000 40,271Total affordable housing (all programmes) of which: .. 29,050 .. 22,858Homes in rural settlements (pop. less than 3,000)8 .. .. .. 2,543Housing for older and vulnerable people8 .. .. .. 2,957Affordable housing9 24,000 28,977 17,000 22,804Housing from Investment programmes10 of which: 4,500 5,252 1,500 2,634Direct .. 4,905 .. 2,465n Affordable .. 73 .. 54n Market .. 4,832 .. 2,411Indirect11 .. 347 .. 169Market housing 5,576 6,842 4,400 5,730

Housing capacity unlocked through infrastructure 41,242 42,808investment (indirect)12

Housing capacity of land disposed13 8,434 8,444Employment floorspace created (sq m) 410,133 470,089“..” not applicable1 Housing starts on site are reported when the provider/developer and builder have entered into the house building contract, the building contractor has taken possession of the site and

the start on site works have commenced. Starts on site are not applicable for Help to Buy.2 Housing completions are reported when the units are fit for occupation or, in the case of equity loan products delivered under Help to Buy and the National Affordable Housing

Programme, at the point of completion of the purchase.3 The targets were approved by the Department for Communities and Local Government.4 The figures in the table reflect HCA’s activity and exclude any outputs which have been attributed to our partners through joint working arrangements, except where stated.5 All programmes are funded by the Department for Communities and Local Government with the exception of Care and Support Specialised Housing, Homelessness Change 2015-18

and Platform for Life which are funded by the Department of Health. A detailed programme breakdown for housing starts and completions is available from our Housing statistics webpage at: https://www.gov.uk/government/collections/housing-statistics

6 The Total excludes the Indirect units reported through our Invesment programmes because these are either in receipt of funding from an affordable housing programme and are reported under that programme on approval of the grant claim or are part of the wider project and have been unlocked as a result of HCA funding.

7 Help to Buy is reported separately because some of the homes sold under the Help to Buy scheme may have also benefitted from funding through other programmes supporting delivery of market homes.

8 Figure excludes delivery through Investment and Single Land programmes.9 Affordable housing includes the following programmes for starts and completions: Affordable Homes Guarantees, Affordable Homes Programme 2015-18, Care and Support Specialised

Housing, Homelessness Change Programme 2015-18, Platform for Life, Right To Buy Replacement, Shared Ownership and Affordable Homes Programme, Short Form Agreements and Single Land Programme. For completions only, Affordable housing also includes Affordable Homes Programme, Empty Homes, Empty Homes Round Two and National Affordable Housing Programme.

10 Investment programmes delivering housing include Build to Rent, Builders Finance Fund, Get Britain Building and The Home Building Fund – Short Term Fund.11 Indirect units contribute to the target and are either in receipt of funding from an affordable housing programme and are reported under that programme on approval of the grant claim

or are part of the wider project and have been unlocked as a result of HCA funding.12 Housing capacity unlocked through infrastructure investment is captured when infrastructure works funded have started on site and reflects the site unit capacity. The output is

‘Indirect’ because there is no contractual relationship between the funding for infrastructure and the provision of the units.13 Housing capacity of land disposed is captured at the point of disposal of HCA land and reflects the site unit capacity.



The key financial measure used by the Board to assess the Agency’s operating performance and in turn by DCLG to monitor the Agency, is programme and administrative expenditure and receipts against Departmental Expenditure Limits (DEL). DEL is categorised into Capital DEL and Resource DEL, reflecting the nature of the transaction. A summary of these performance measures are as follows:

2016/17 2015/16 Capital

£mResource

£mTotal

£mCapital

£mResource

£mTotal

£mGross expenditure 3,364.4 129.8 3,494.2 2,287.4 110.5 2,397.9Receipts (515.8) (151.1) (666.9) (572.3) (126.8) (699.1)Net DEL expenditure 2,848.6 (21.3) 2,827.3 1,715.1 (16.3) 1,698.8Net DEL working budget 2,798.9 (16.2) 2,782.7 1,837.5 (4.5) 1,833.0Variance (49.7) 5.1 (44.6) 122.4 11.8 134.2

For the financial year ended 31 March 2017, due to increasing demand for the Help to Buy product, DCLG held a contingency within their own departmental budget rather than allocating the budget direct to the Agency. Although the outturn above exceeds the working budget allocated to the Agency by DCLG, the overall outturn was within the total of the Agency’s budget and DCLG’s earmarked contingency.

Note 14 to the Financial Statements provides further detail about the Agency’s performance with regard to DEL. The Chairman and Chief Executive’s report also includes further detail about the Agency’s performance during the year in relation to particular programmes and schemes.



THE PERFORMANCE REPORTOTHER INFORMATION – SUSTAINABILITY

Sustainability Report

This report sets out our sustainability performance in respect of our operational office estate and official business travel. It covers greenhouse gas emissions, energy use, finite resource use (water and paper), waste and recycling, procurement, biodiversity and pollution prevention. The information has been prepared in accordance with the current public sector sustainability reporting guidance produced by HM Treasury.

The Agency currently operates from 10 office locations across England. All our offices are either owned by us, incorporating space tenanted by other government bodies, or are within space managed by other government bodies. We no longer occupy any privately leased office space and less than a quarter of Agency staff now work in the two offices we own and directly control.

Sustainable development is an integral aspect of our wider work. One of the Agency’s statutory objectives is to contribute to the achievement of sustainable development and good design with a view to meeting the needs of people living in England. Our Environmental Policy Statement (EPS) was adopted in 2015 and renewed in 2016. It summarises our commitment to environmental protection and enhancement across our offices, operations and wider estate. Environmental and sustainability performance reports are considered at the quarterly meetings of our Safety, Health and Environmental Committee, which is chaired by the Executive Director of Finance and Corporate Services.

We have an internal environmental and sustainability action plan which focuses on improving our performance in respect of business travel, paper use, staff environmental knowledge and environmental reporting. During May 2016, the Green Champions network delivered a second internal Green Week. They ran various lunchtime activities including a ‘monitors off’ campaign, a low carbon charity cake bake, a visit from a bike maintenance technician and staff talks on work-related sustainability issues. Green Week was supported by the Interim CEO who announced his commitment to keeping his office paper-free. A series of blog posts and intranet articles helped to sustain the awareness campaign in the months following.

We report sustainability data and progress against the Greening Government Commitment targets (GGCs) to central government on a quarterly basis, either directly to DCLG (travel data and data for offices the Agency owns) or indirectly with another Government department reporting on our behalf (for shared space). In addition, we report below the utilities and waste data for the staff offices we directly controlled in each year. From April 2015, the only offices we control are our Gateshead and Warrington offices.

Notes on data

We have re-stated all utilities and waste figures for previous years so that only the directly controlled (HCA owned or privately leased) offices are included, plus any directly commissioned waste collections resulting from office moves. The baseline referred to below is the baseline for the offices that we were responsible for reporting on in 2009/10, not the whole office estate. We no longer include data for utilities and waste for the shared space our staff occupy through a Memorandum of Terms of Occupation with another government body. Under the HM Treasury reporting guidance, the lead government body in those locations is responsible for reporting for the whole building. Accordingly, we include our own government tenants within the figures below. A proportion of the utilities and waste spend reported below is recharged to the tenants. We continue to report on paper and travel for the whole organisation.

Where we report on a ‘per FTE’ (full time equivalent) basis, this is a figure which represents occupancy at the offices covered by the data for utilities and waste. This is the total of the number of FTE staff and the number of tenant desks in those locations. The whole staff FTE figure is used for travel and paper, to match the scope of the data and ensure consistency with other sections of this Annual Report.



Sustainability performance

Greenhouse gas emissions

Our greenhouse gas emissions performance is as follows:

2013/14 CO2e

(tonnes)

2014/15 CO2e

(tonnes)

2015/16 CO2e

(tonnes)

2016/17 CO2e

(tonnes)Direct emissions from gas consumption (scope 1) 248.53* 119.54* 90.45* 85.84Indirect emissions from electricity use (scope 2 and 3) 737.98* 590.67* 427.78* 377.60Official business travel – car (scope 1 and 3) 582.46 573.58 497.07 490.86Official business travel – air (scope 3) 2.59 7.45 6.72 5.27Official business travel – rail (scope 3) 174.28 238.02 171.45 184.81Official business travel – other (scope 3) 2.16 2.59 2.03 2.15Total greenhouse gas emissions – Scopes 1, 2 and 3 1,748.00* 1,531.85* 1,195.50* 1,146.53

Related energy consumption and expenditure data is as follows:

Related energy consumption Unit 2013/14 2014/15 2015/16 2016/17Gas use Kwh 1,021,300* 645,472* 490,223* 466,513Electricity use Kwh 1,375,468* 1,098,971* 854,868* 840,410Car (distance travelled) km 3,325,887 3,256,660 2,835,381 2,838,401Rail (distance travelled) Km 3,556,773 4,091,151 3,804,850* 3,783,176Air (domestic, distance travelled) km 14,984 44,636 42,660 33,428Domestic flights number 28 117 118 94Office energy consumption kWh / FTE 3,631* 3,604* 4,039* 3,821Total business distance (car / rail / air) km 6,897,644 7,392,447 6,682,891* 6,655,005Official business travel (car / rail / air) km / FTE 7,794 8,053 7,328* 8,028Official business travel (car / rail / air) miles / FTE 4,843 5,004 4,553* 4,988

Related expenditure Unit 2013/14 2014/15 2015/16 2016/17Energy consumption £'000s 182 141 138 127Official business travel £'000s 2,037 1,961 1,747 1,585*Re-stated data. Only the directly controlled (HCA owned or privately leased) offices are now included for previous years. We have also re-stated the 15/16 rail distance and business distance per FTE figures. After publication last year, an error was identified in the rail data provided by our travel management company. The data supplied included distances for cancelled journeys that were doubled rather than removed. Affected data has been corrected.



THE PERFORMANCE REPORTOTHER INFORMATION – SUSTAINABILITY(CONTINUED)

The GGC targets included a requirement to achieve a 25% cut in operational greenhouse gas emissions by 2014/15 (measured as CO2 equivalent, CO2e). Our data above shows that by 2016/17, we had exceeded this target by achieving a 48% reduction in emissions against the 2009/10 baseline of 2,187 tonnes CO2e. A significant proportion of the decrease, as with utilities use and waste production, is due to a reduction in the size of our estate. Since 2009/10, the majority of staff have been moved from privately leased offices to shared government properties which are outside the scope of this report.

The data above show that despite more staff and contractors being based in the two offices in 2016/17, we have reduced both gas and electricity consumption, by 4.8% and 1.7% respectively compared to 2015/16. ‘Degree day’ data for the two locations show that there was no significant difference in the external temperature / winter heating demand between the two years. However, two factors may explain the gas reduction:

■■ A large ground floor office at the Warrington site was vacated early in 2016 due to reductions in staff numbers. At the same time, the heating in this area was turned off. This space is currently awaiting occupation by other Government tenants.

■■ The benefit of pipework insulation installed in the Gateshead office in late 2015 has resulted in a lower demand on the gas-fired boilers.

The slight reduction in electricity consumption is the result of improvements to our Gateshead Data Centre. As previously reported, our Investment Management System was transitioned and upgraded to new IT servers in late 2015, enabling the volume of energy-intensive equipment and associated cooling requirements to be significantly reduced. Sub-metering data from the centre demonstrates a 13% reduction in the daily average electricity consumption from 2015/16 to 2016/17, from 671kWh to 584kWh a day. Work is continuing in 2017/18 to rationalise and replace servers, providing additional business benefits such as reduced demands on staff time for upgrades and maintenance.

The greenhouse gas emissions associated with electricity use have decreased by nearly 12%. This is because the Department for Energy and Climate Change emissions factor used in the calculation is significantly smaller in 2016 due to decarbonisation of UK electricity generation (closure of coal plant and installation of renewables).

With regards to distance travelled on business, there was an increase in car travel of less than 1%, offset by a decrease in rail travel also of 1% which meant there was effectively no change in the overall business distance travelled by staff between 2015/16 and 2016/17. The greenhouse gas emissions associated with car travel have however slightly decreased, reflecting a growing number of low emission hybrid vehicles within the HCA fleet. The majority of vehicles ordered in 2016 were hybrid rather than standard petrol or diesel. Lease car users are incentivised in several ways to choose an alternatively fuelled vehicle such as a hybrid. The Agency makes a small monthly contribution towards lease costs and offers a choice of vehicle make and models. Travel by air decreased by 22% and still accounts for significantly less than 1% of business mileage. Staff must obtain Director approval before travelling by air.

Our environmental and sustainability action plan commits us to achieving and maintaining a 5% decrease in annual travel distance per FTE staff against the 2014/15 baseline of 8,053km / FTE by 2018/19. When the total distance travelled on business is normalised by the number of FTE staff, a 9.6% increase is evident in 2016/17 compared to 2015/16, however there was a marginal decrease (<1%) compared to the 2014/15 baseline year. The increase against 2015/16 can be attributed to the increased activity between different teams in the Agency during restructuring and potentially the increase in ‘patch size’ for local delivery teams as the number of staff within those teams has decreased.



Ongoing use of the Lync system continues to help reduce the need to travel, particularly for internal meetings and training, by enabling at-desk conferencing. The majority of offices also have a Lync SMART Room system with a further installation completed in 2016/17. Lync was used to deliver four environmental training webinars attended by staff from across the Agency in summer 2016, covering topics including the waste duty of care and wildlife licences.

Finite resource consumption – water

Water consumption figures are presented below:

Unit 2013/14 2014/15 2015/16 2016/17Water consumption – supplied (none abstracted)

m3 5,515* 3,614* 1,572* 1,543

Water consumption per FTE staff m3 per FTE 8.4* 7.5* 4.7* 4.5Expenditure on water supply £’000 19.06 17.78 18.47 19.43*Re-stated data. Only the directly controlled (HCA owned or privately leased) offices are now included for previous years.

Our reportable water use has reduced very slightly (1.9%) compared to 2015/16. Longer term there has been a significant reduction in both absolute consumption and consumption relative to the number of FTE staff. The data for earlier years includes several privately leased locations where the Agency occupied an office in a much larger building which had a single water meter. Reducing water consumption has become easier now that Government bodies subject to the GGCs control all staff offices, for example there is a strong incentive to quickly rectify leaks. Overall we have reduced our reportable water consumption by 88% against the 2009/10 GGC baseline.

Finite resource consumption – paper

Paper consumption and expenditure figures are as follows:

Unit 2013/14 2014/15 2015/16 2016/17Paper consumed A4 reams

equivalent9,450 8,548 7,526 6,039

Paper consumed per full time equivalent staff

Reams / FTE

10.7 9.3 8.3 7.3

Expenditure on paper £’000 30 20 14 8

Figures for 2015/16 and 2016/17 were calculated using data from the multi-functional devices (printers/copiers) in each location. Their activity is monitored through a web portal. The data show that our overall paper consumption has declined by 19.8% this year compared to 2015/16, with a 12% reduction per FTE staff to 7.3 A4 reams equivalent. Our environmental action plan target was to reduce our paper use from 9.3 A4 reams equivalent per FTE staff in 2014/15 down to 7.5 A4 reams equivalent per FTE staff by 2018/19. Our performance for 2016/17 shows we have exceeded this target two years early. Spend is significantly lower as we now only purchase paper directly for eight offices. In respect of the GGC targets, we have reduced our paper consumption by 64% against the 2009/10 baseline of 16,800 A4 reams equivalent.

Teams right across the organisation have actively worked to reduce paper use over the past two years by avoiding printing for events and replacing paper-based systems with electronic approaches where possible.



THE PERFORMANCE REPORTOTHER INFORMATION – SUSTAINABILITY(CONTINUED)

Electronic systems are essential to supporting our staff to work more flexibly, such as in different locations and in reducing the requirement for physical storage space in the offices.

Following last year’s move to electronic invoicing, we introduced an online pension tool called OneView in 2016. In the past, every staff member who belonged to the HCA Pension Scheme received their annual statement and member information in hard copy. The new system enables HCA Pension Scheme members to log into the online portal to view their recent benefit statement and other scheme information. Scheme members receive an improved service as they receive scheme information more quickly. They must actively ‘opt out’ to continue receiving information in hard copy. Further initiatives this year included the introduction of a ‘virtual’ online staff induction handbook, an intranet blog post from our IT trainer on methods to reduce paper use and the sharing of presentation slides electronically after major training events, rather than in hard copy on the day. The Lync system for online meetings has been in widespread use across the organisation now for nearly three years. The ability to share documents on screen across multiple locations reduces the need to print for online meetings.

Waste and recycling

Waste and recycling performance is as follows:

Unit 2013/14 2014/15 2015/16 2016/17Hazardous waste Tonnes 0.00 0.05 0.05 0.05Non-hazardous waste: landfill Tonnes 41.52* 4.75* 0.12* 1.72**Non-hazardous waste: Incineration, energy recovery

Tonnes 0.00* 0.00* 3.34* 2.59

Non-hazardous waste: recycled Tonnes 66.25* 73.00* 24.77* 17.34Total ICT waste (all reused / recycled) Tonnes 3.12 2.82 2.17 1.33Total waste generated Tonnes 110.89* 80.62* 30.45* 23.03Recycling rate % 63* 94* 88* 81

Related expenditure Unit 2013/14 2014/15 2015/16 2016/17Expenditure on waste disposal £'000s 13 15 8 12Expenditure on waste recycling £'000s 24 22 11 12*Re-stated data. Only the directly controlled (HCA owned or privately leased) offices are now included for previous years. **During the year, the Agency refurbished its Chatham Office which resulted in an increased amount of non-hazardous waste removed from site.

The overall volume of waste produced from the two sites has decreased by 25% this year compared to 15/16, which is likely to reflect the significant reduction in paper use discussed above and increasing numbers of staff working flexibly away from the office. General waste contractors recycle or recover (through energy from waste incineration) between 84% and 90% of our ‘black bag’ waste. Overall, less than 10% of our reported waste is landfilled. In respect of the GGC target, reportable waste has reduced by 92% against our 2009/10 baseline of 254 tonnes.



During 2016/17, we removed vending machines for hot drinks and disposable cups for staff from all our offices. We now provide staff with standard tea, coffee and hot water. As well as reducing unnecessary waste both from drinks sachets and cups, this change has delivered approximately £40,000 in annual savings.

Climate change adaptation

Our two owned offices are located in river flood zones 1, ie low risk. On climate change mitigation, we continue to monitor the energy performance certificate ratings of our commercial properties on the wider estate, in preparation for new regulations coming into force in 2018. These will restrict the leasing of properties with lower energy efficiency ratings (F and G). This review is helping to inform sale, lease and investment decisions.

Procurement

Where appropriate, the Agency procures goods and services through the Crown Commercial Service (CCS) frameworks. The Agency’s procurement policy follows the principles set out under the Government Buying Standards and we include an organisation’s environmental management arrangements and performance track record within the criteria for the selection of contractors where relevant.

Biodiversity

Our directly controlled operational office estate incorporates very limited green space, although we maintain a green roof on our Gateshead office which provides habitat for insects and other wildlife. On our wider estate, our environmental policy statement commits us to preventing pollution and where possible, avoiding adverse impacts on soil, water, air and biodiversity. We seek opportunities for biodiversity enhancement on our landholdings where these are compatible with planned future use.

Pollution Prevention

Aside from our modest office estate, the Agency has a complex land portfolio which forms its wider estate. This encompasses a range of residual infrastructure liabilities (RIL) including pumping stations, sewage treatment plant, gas governors, wind turbines and reservoirs. We recognise that RIL have the potential for causing pollution and unacceptable risks to health and safety if not rigorously managed. Since 2013, we have taken a systematic approach to identifying and managing RIL across our portfolio, which includes the appointment of competent contractors to carry out monitoring and maintenance, regular reporting on RIL status to the HCA Board and ongoing work to ensure RIL are adopted or sold to an appropriate third party such as the relevant utility company.

As of April 2017, we had reduced the number of RIL from a high of 180 in September 2015 to 32. The number of ‘high-risk’ liabilities (as assessed by their type and location) currently stands at two, one of which is in the process of being adopted under the Water Industry (Schemes for Adoption of Private Sewers) Regulations 2011. The other is a sewage treatment plant which will be replaced by a new dedicated sewer within the next two years to serve a new housing development on the site.



THE PERFORMANCE REPORTOTHER INFORMATION

Going concern

The Agency’s net assets reflect the inclusion of liabilities falling due in future years which, to the extent that they are not to be met from the HCA’s other sources of income, may only be met by future grants or grant in aid from the HCA’s sponsoring department, the Department for Communities and Local Government (DCLG). Such grants may not be issued in advance of need and grant in aid for the year ending 31 March 2018, taking into account the amounts required by the HCA’s liabilities falling due in that year, has already been approved by Parliament. There is no reason to believe that DCLG’s future sponsorship and future parliamentary approval will not be forthcoming. The Board therefore considers it appropriate to adopt a going concern basis for the preparation of these financial statements.

The Performance Report is signed on 22 June 2017.




THE ACCOUNTABILITY REPORTCORPORATE GOVERNANCE REPORT

The accountability report is intended to meet key accountability requirements to Parliament. It contains three separate reports: The Corporate Governance Report, The Remuneration and Staff Report, and a Parliamentary Accountability and Audit Report.

Corporate Governance Report

This report explains the composition and organisation of the HCA’s governance structures and how they support the achievement of the Agency’s objectives. The report comprises individual sections including The Board Members’ Report, The Statement of Accounting Officer’s Responsibilities, and The Governance Statement.



THE ACCOUNTABILITY REPORTBOARD MEMBERS’ REPORT

Statutory background

The Homes and Communities Agency (HCA) was established by Parliament under the Housing and Regeneration Act 2008 and is the national housing and regeneration agency for England. The Agency is also responsible for social housing regulation and exercises this function through the Independent Regulation Committee.

Principal activities

The statutory objectives of the HCA, as listed in the Housing and Regeneration Act 2008, are noted in the Performance Report.

Format of the financial statements

The HCA’s Financial Statements for the year to 31 March 2017 have been prepared in accordance with the Accounts Direction issued on 8 December 2014 by the Secretary of State with the consent of HM Treasury and in accordance with Paragraph 12(3) of Schedule 1 to the Housing and Regeneration Act 2008.

Board Membership

A list of all Board Members during the year is disclosed in the Remuneration and Staff Report which starts on page 45.

Register of members’ interests

The register of members’ interests is open for public inspection and can be found at www.gov.uk with a search for ‘Homes and Communities Agency register of interests’.

Pension arrangements

During the year the Agency’s employees were able to participate in one of the following contributory pension schemes:

■■ The Homes and Communities Agency Pension Scheme

■■ The City of Westminster Pension Fund

■■ The West Sussex County Council Pension Fund

All three schemes are multi-employer defined benefit schemes. The Homes and Communities Agency Pension Scheme is a final salary scheme and is the only scheme which remains open to new employees. The other schemes are Local Government schemes which changed from a final salary to career average basis for benefits accruing from 1 April 2014.

Information on Board Members’ and Key Managers’ pension entitlements is disclosed in the Remuneration and Staff Report which starts on page 45.



Principal risks and uncertainties

A review of the HCA’s principal risks and its capacity to handle risk, which sets out the HCA’s objectives in respect of risk management plus the strategy to be employed in putting the policy into effect, has been prepared as set out in the Governance Statement which starts on page 29. Note 32 of the Financial Statements sets out the HCA’s financial risk management procedures.

Cash flow and liquidity

The Agency relies upon grant in aid receipts from DCLG to maintain general liquidity. Grant in aid is drawn-down monthly during the year from DCLG to fund the Agency’s net cash requirement. The amounts drawn-down are based upon estimates of need.

On a daily basis, any balance remaining in a commercial bank account, in excess of £250,000, is transferred to the Government Banking Service as directed by HM Treasury. The Government Banking Service is the shared services provider for banking to the public sector which encourages public sector bodies to maximise the value of funds available to the Exchequer.

Auditors

The Comptroller and Auditor General is the statutorily appointed auditor under the provisions of the Housing and Regeneration Act 2008.

The cost of work performed by the auditors for the Agency is as follows:

2016/17£’000

2015/16£’000

Audit fee 210 215

So far as we are aware, there is no relevant audit information of which the auditors are unaware, and we have taken all steps to make ourselves aware of any relevant audit information and to establish that the auditors are aware of that information.



THE ACCOUNTABILITY REPORTRESPONSIBILITIES OF THE ACCOUNTING OFFICER

Responsibilities of the Accounting Officer

Under the Housing and Regeneration Act 2008, the Secretary of State has directed the Homes and Communities Agency (HCA) to prepare for each financial year a statement of accounts in the form and on the basis set out in the Accounts Direction. The accounts are prepared on an accruals basis and must give a true and fair view of the state of affairs of the HCA and of its income and expenditure, changes in taxpayers’ equity and cash flows for the financial year.

In preparing the accounts, the Accounting Officer is required to comply with the requirements of the Government Financial Reporting Manual and in particular to:

■■ Observe the Accounts Direction issued by the Secretary of State including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis

■■ Make judgments and estimates on a reasonable basis

■■ State whether applicable accounting standards as set out in the Government Financial Reporting Manual have been followed, and disclose and explain any material departures in the Financial Statements

■■ Prepare the Financial Statements on a going concern basis, unless it is inappropriate to do so.

The Secretary of State has appointed the Chief Executive as Accounting Officer of the HCA. The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the public finances, for which the Accounting Officer is answerable, for keeping proper records and for safeguarding HCA’s assets are set out in the Framework Document published by the Secretary of State and with the instructions and guidance laid down in Managing Public Money issued by HM Treasury.

The Accounting Officer confirms that the annual report and accounts as a whole is fair, balanced and understandable and takes personal responsibility for the annual report and accounts and the judgments required for determining that it is fair, balanced and understandable.

http://www.opsi.gov.uk/acts/acts2008/ukpga_20080017_en_1.htm



THE ACCOUNTABILITY REPORTGOVERNANCE STATEMENT

Introduction

My Governance Statement provides an overview of the operation of the HCA. It explains the stewardship of the organisation and how the HCA has responded to the risks and challenges it has faced over the past year and looks ahead to those it faces going forward.

I took up responsibility as the Accounting Officer of the Homes and Communities Agency on 1st March 2017.

This has been a year of considerable change for the Agency. There has been a new Prime Minister, a new Secretary of State and new Housing Minister and changes to the Executive Team. Fundamentally a General Election has been called ahead of a full term.

There was a positive outcome from the Tailored Review, confirming that the Agency will continue to play a major role working in partnership with the public and private sector to deliver the government’s housing priorities and we also had the vote to leave the European Union (EU), leading to a period of uncertainty and wholesale changes in our ministerial team.

A new Director General has taken up post for the Department, with whom I have built a strong relationship, and the launch of the first Housing White Paper for 14 years has taken place. This introduced the future re-branding of the Agency as ‘Homes England’ with a new activist strategy for the HCA, promoting different models to accelerate construction, including offsite modular building. It was further announced during 2016 that the Regulatory function would be split from the HCA and become a standalone organisation reporting into DCLG. It has also been agreed that the regulator will charge fees from 1st October 2017 ahead of this separation.

The Agency’s balance sheet continues to grow and is £8.1bn at 31st March 2017, £5.7bn of which is Help to Buy equity based loans. The Agency and Department are looking at the future demand and forecasting arrangements for the Help to Buy product. A down turn in house prices or other economic conditions could place the balance sheet under considerable pressure.

The vast majority of the balance sheet is focused in a single sector and susceptible to economic shocks. It is an immature portfolio of financial investments which is usually outside the risk appetite of other market investors and lenders.

Given the numerous systems within the Agency I will be focusing on a new Digital Strategy and the development of this over the coming months and its significant importance to the culture work taking place.

New targets for the Agency have been set, to be delivered by 2021, including:

■■ Supporting the delivery of the government commitment to deliver 225,000 affordable housing starts

■■ Provision of loans through the £3bn Home Building Fund to enable developers to provide capacity for 184,000 homes through the Long Term Fund and 25,500 starts on site through the Short Term Fund

■■ Lead the government programme to release public sector land for 160,000 homes acting as the main disposal agent for public land including providing capacity for 36,000 homes on land which the Agency owns

■■ Acquire, prepare and sell brownfield public sector land with capacity for 25,000 Starter Homes

■■ Support the purchase of 145,000 homes through the Help to Buy Equity Loan Scheme



THE ACCOUNTABILITY REPORTGOVERNANCE STATEMENT (CONTINUED)

■■Administer the Voluntary Right to Buy pilot to enable tenants to purchase their homes from registered providers

Scope of responsibility

On joining the Agency I attended the formal Accounting Officer training. As Accounting Officer, I have responsibility for maintaining a sound system of internal control that supported the achievement of the HCA’s policies, aims and objectives. I also ensured the HCA operated to a high standard of probity and used its resources efficiently, economically and effectively, in accordance with the responsibilities assigned to me by the Principal Accounting Officer of the Department for Communities and Local Government (DCLG) and as defined in Managing Public Money.

Accountability arrangements

As already stated I have undertaken the Accounting Officer responsibilities from the 1st March 2017. There was an interim Chief Executive holding the role from April 2016 to the end of February 2017 and he and the Chair of the Board briefed me on the detailed position in relation to the Accounting Officer responsibilities. I have relied upon the previous Accounting Officer and the arrangements he had in place prior to his formal handover to me on 1st March 2017.

I have been responsible for ensuring:

■■ Regularity and propriety

■■ Affordability and sustainability

■■ Value for money

■■ Accurate accounting of the organisation’s financial position and transactions.

The Accounting Officer responsibility covers all aspects of HCA operations with a small number of exceptions, where the HCA is responsible for programme management, but ultimate responsibility for budgets rests with another body. These programmes/assets are:

■■ Affordable Housing Guarantees and the Private Rental Sector, all on behalf of DCLG

■■ Care and Support Specialised Housing Fund, on behalf of the Department of Health

■■ BEIS Innovation and Technology Assets, on behalf of the Department for Business Energy and Industrial Strategy.

The HCA is responsible for the regulation of social housing providers in England. The regulatory responsibilities are discharged through the independent Regulation Committee, and within the parameters of the regulatory framework that it has established. Following the Tailored Review, DCLG has consulted with the sector on the mechanism for separation of the Regulator of Housing into an independent arm’s length body. It is recognised that the delivery role of the investment arm of the Agency could result in conflicts of interest within the Agency. Whilst I am confident that the Agency has put in place protocols to ensure independent decision making, that have worked effectively to date; the Review concluded that due to the changing nature of the Agency’s business, separation from the Regulator would be a more effective measure of ensuring separation.

In London, the Mayor remains responsible for the majority of housing and regeneration activities. In a number of areas the Mayor has delegated his powers to allow the Agency to support the Mayor in the delivery of the GLA housing investment programmes and affordable home ownership programmes, within London.



A comprehensive scheme of internal delegations is in place that enables the day-to-day management of the HCA to be shared with the Chief Officers and Executive Directors of the HCA and their staff. The scheme of delegations is kept under review throughout the year, and key amendments are approved by the Board and the Accounting Officer.

Relationships between HCA and DCLG

The relationship between the HCA and DCLG is formally governed by a detailed Framework document and a supporting sponsorship infrastructure. During the year, the HCA and DCLG worked closely together to continue to support the Government’s commitment to housing and economic growth. Expectations on housing delivery have only continued to increase, based on the announcements made during the year, making it even more important that the HCA and DCLG work effectively together.

The HCA sponsorship function is located in a team within DCLG’s Finance, Information, Records, Shared Services and Technology Division. Significant issues are discussed at the Housing Supply and Ownership Board, which is led by the Director General for Housing and Planning at DCLG and attended by senior officers from both the HCA and DCLG.

The Department’s Sponsorship team is also going through a period of staffing changes and we will need to work together on a new relationship.

I have regular meetings with the Accounting Officer of DCLG, the Housing Minister and the Secretary of State. I consider that these meetings have considerably supported DCLG and the Agency in working closer together to deliver government targets. I have not met the Department’s sponsorship lead since joining.

In addition the Regulator, via the Director of Regulation, liaises directly with DCLG sponsorship and with the DCLG policy team responsible for social housing regulation on policy matters affecting Regulation.

The Board, its Committees and Advisory Groups

The key governance arrangements within the HCA are brought together in the HCA Governance Manual, the latest version of which was published in November 2016.

Board Members have collective corporate responsibility for ensuring that the HCA: discharges its functions effectively and efficiently in accordance with the Framework Document; fulfils the overall aims, objectives and the priorities approved by the Secretary of State in the Corporate Plan; follows all guidance and directions issued by the Secretary of State and HM Treasury; and ensures that the HCA complies with all statutory or administrative requirements relating to the use of public funds.

Members of the Board are also responsible for:

■■ Monitoring and reviewing the risk management and internal control strategy

■■ Promoting equality and diversity throughout the HCA

■■ Ensuring that a whistleblowing policy is in place

■■ Promoting and supporting the HCA’s zero tolerance to bribery and corruption

■■ Ensuring that the HCA operates sound environmental policies.




With specific regard to regulation, the role of the HCA Board is to:

■■ Provide resources sufficient to enable the Regulation Committee to carry out its regulation functions on behalf of the HCA Board

■■ Ensure a process is in place for receiving regular updates from the Regulation Committee on the regulation function which reflects its accountability for exercising the regulatory function through the Regulation Committee

The HCA Board has also established a number of committees and advisory boards which it considers necessary for the effective conduct of its business. The HCA Board currently operates four committees:

■■ Programmes and Projects Committee (PPC)

■■ Credit and Risk Committee (CRC)

■■ Nominations and Governance Committee (N&G)

■■ Audit and Risk Committee (ARC)

In addition to these Committees, the Board has established the Equality and Diversity Advisory Board Group comprising both Board and independent Members. This group oversees the delivery of our Equality and Diversity Strategy and objectives and makes recommendations to the Board.

The HCA may only operate the regulatory function through an independent Regulation Committee.

Board and Committee attendance

The Board has undergone significant change with DCLG recruiting 4 new members in February 2017 and is composed of Non-Executive members and the Chief Executive. Kevin Parry was interim Chair of the Board from January 2016 until the appointment of Sir Edward Lister in June 2016. Ian Robertson retired from the Board in September 2016 and Kevin Parry left the Board in January 2017. The new Members and I were inducted in February 2017 just prior to my formal start date on 1st March 2017.

Simon Dow joined the Regulation Committee in April 2016. In order to maintain an independent Regulation Committee its members are not Board members except for the Chair of the Regulation Committee who advises the Board on key decisions taken by the Committee each month.

Board members’ attendance at HCA Board and Committee meetings during the year is set out below. For each committee, attendance by the member is shown followed by the number of times each committee met during that member’s tenure in brackets. Committees may also invite non-members to attend committee meetings, if for example they have a particular interest in a topic under discussion.



Name Board PPC CRC ARCEdward Lister 5 (5) 7 (8) 1 (3)Ian Robertson 4 (4) 4 (5) 1 (2) 4 (4)Anthony Preiskel 6 (7) 9 (11) 4 (4) 6 (6)Kevin Parry* 5 (6) 4 (5) 2 (3) 3 (6)Niall Mills 7 (7) 7 (11) 1 (4) 4 (6)Keith House** 6 (7) 8 (11) 1 (1)Ann Limb 4 (7)Julian Ashby 7 (7) 6 (6)Simon Dudley 1 (1) 2 (2) 1 (1)Richard Blakeway 1 (1) 1 (2) 1 (1)Stephen Bell 0 (1) 0 (0)Teresa O'Neill 1 (1) 0 (0)Mark Hodgkinson 5 (6) 8 (10) 3 (3)Nick Walkley 1 (1) 1 (1) 1 (1)There were no meetings of the Nominations and Governance Committee this year.*Kevin Parry did not attend ARC while interim Chairman of the Board, in accordance with best corporate governance practice.**Keith House was appointed to ARC for one meeting only, to ensure a quorum.

Name Regulation CommitteeJulian Ashby – Chairman 11 (11)Simon Dow 11 (11)Richard Moriarty 8 (11)Ceri Richards 11 (11)Sarah Wall 9 (11)

HCA Board

The Board is presented with detailed performance information at each meeting. The information provided includes financial information such as budgets, expenditure and receipts, actuals, forecasts and variances. Non-financial information includes progress towards the achievement of output targets agreed with DCLG, including housing starts and housing capacity of public land sold. The Agency’s Housing starts and completions are published as Official Statistics and as such are subject to robust data and disclosure requirements.

The Board review and hold management to account for our performance through the in year performance report. In addition to in-year performance reporting, a report has been developed to forecast performance over the current Spending Review period and will be further developed. In particular the development of a much enhanced current and future data driven Help to Buy model is a priority for the Agency and the Department. Other than understanding current and future data for Help to Buy expenditure forecasting, Board have not indicated issues with the in year performance report. However it will be re-developed as it was the report structure of the previous Chairman and Board.

The Board is presented with detailed performance information at each meeting. The information provided includes financial information such as budgets, expenditure and receipts, actuals and forecasts and variances.




Non-financial information includes progress towards the achievement of output targets agreed with DCLG, including housing starts and Help to Buy completions.

The Board has not appointed a Lead Non-Executive Board Member, as the HCA Board is chaired by a Non-Executive Director. This is in contrast to Central Government Department Boards which are chaired by the Secretary of State. Other than this technical point, the HCA has complied in all material aspects with the Corporate governance in Central Government Departments: Code of Good Practice as it applies to arm’s length bodies.

The HCA Board carried out a self-assessment exercise in January 2017 which drew attention to the governance challenges that had arisen this year, including the shortage of Board members, pending the currently completed recruitment, which had increased workloads for those remaining considerably. I am grateful for all the support that members have given the Agency over the intervening period. Members had no significant reservations about the overall effectiveness of the Board.

Board Committees

Programmes & Projects Committee

This Committee oversees the delivery of the Agency’s programmes and projects for recoverable investment, the land pogrammes and affordable home ownership programmes.

Credit & Risk Committee

This Committee monitors the Agency’s risk profile in respect of its portfolio of recoverable investments and guarantees and provides oversight and advice to the Board on current financial risk exposures and the future risk strategy for HCA’s recoverable investment programmes.

Audit and Risk Committee

This Committee supports the Accounting Officer, HCA Board and the HCA Regulation Committee in their responsibilities for risk control, governance, financial stewardship and financial and statutory reporting. It reviews the comprehensiveness of assurances and reporting processes, consistent with the Accounting Officer’s assurance needs. Meetings are attended by representatives of the NAO and DCLG.

The Audit and Risk Committee carried out its annual self-assessment in 2016 and the committee has been working with officers to improve the format of risk reporting within the Agency. In particular the investment that has been made in the Risk Team under the direction of the Chief Risk Officer will focus on improving the risk arrangements across the Agency and in particular the introduction and improvements in respect of assurance mapping and the 3 lines of defence respectively. The experience of the new ARC Chairman will be invaluable in this area of work.

Nominations and Governance Committee

This Committee is responsible for advising on overall pay and rewards, the remuneration, contractual and pension arrangements of staff at Director level and above and setting and agreeing the annual performance objectives, remuneration terms and other terms and conditions of employment of the Chief Executive and Directors, subject to DCLG and HM Treasury spending team approval.



Regulation

The HCA is the regulator of social housing providers in England, but it may only exercise its functions through the Regulation Committee, an independent committee which was established by the Localism Act 2011.

The key activities of the Regulator are to:

■■ Maintain a register of providers of social housing

■■ Set and apply the economic regulation objective to private registered providers

■■ Seek assurance that the economic standards are being met and take appropriate action when not – with the principal focus being on financial viability and sound governance of registered providers

■■ Set standards in relation to consumer regulation.

The Regulator must exercise its functions in a way that minimises interference, and (so far as is possible) is proportionate, consistent, transparent and accountable.

Regulation Committee

Regulation Committee members are appointed by the Secretary of State and the Committee operates within its terms of reference, code of conduct and appeal procedures. A protocol has been agreed setting out how the statutory functions and duties of the Regulation Committee will be exercised within the HCA.

The Committee has ensured that operational regulation is focused on its statutory objectives ensuring providers are financially viable and well governed as well as delivering value for money, thereby retaining the confidence of key stakeholders, particularly lenders and the capital markets.

The Regulation Committee carried out an effectiveness review in February 2016 to ensure that members have the appropriate skills and expertise and concluded that member effectiveness had improved year on year with no matters of concern.

In a rapidly changing operating environment and within available resources, the Committee is determined to:

■■ Ensure that providers are financially viable and well governed, as well as delivering value for money

■■ Through ensuring the viability and good governance of the sector, help to ensure that the social housing sector can continue to attract necessary finance to fulfil their objectives, including to develop new supply.

Regulatory framework & operational approach

The Regulator has now been operating its new regulatory approach for 2 years. The details of all current Regulatory Judgements and Notices are available on the HCA’s website: www.gov.uk/hca.

The Housing and Planning Act 2016 enacted changes in rent policy, the voluntary extension of Right to Buy to housing associations, the reclassification of the sector and subsequent plans for deregulation, which has impacted on the consents regime. Implementation of the changes to the sector have been delivered as appropriate by the Internal Regulation 2016 programme to ensure all operational changes are timely and effective. DCLG has consulted on the Legislative Reform Order that will need to be presented through parliamentary processes regarding the separation of the Housing Regulator from the Agency.




Independence

The Chief Executive Officer, as Accounting Officer for the HCA, including both its regulation and investment functions and staff, recognises the importance of controls being in place to ensure that the decisions of the Regulation Committee are taken independently of the HCA’s investment function. Consequently, all HCA Chief Officers and Directors have provided assurance to me that they recognise this independence requirement and confirmed that there has not been any risk of breach of this independence.

Some functions within the HCA provide services to both the Investment and Regulation Directorates including Legal Services, HR, Finance, IT and Internal Audit.

Staff within these functions do not take direct decisions related to either investment or regulation.

Executive decision making groups

The Directors’ Group is the principal group for the Agency, below Board-level, for implementing strategies, operational policies and procedures. Directors’ Group works to ensure that the deployment of resources is sufficient across the Agency to maintain delivery and that corporate services provide effective service support to land, investment and regulatory functions. It will input into the development of future corporate plans and monitor their delivery.

Directors’ Group is supported by a number of standing groups / boards, which monitor the HCA’s programmes, help provide strategic direction or deliver specific standalone projects.

The Regulation Executive consists of the Executive Director of Regulation and the Deputy Directors. It is accountable for the performance of the directorate at an operational level. Working with, and reporting to, the Regulation Committee and via the Director of Regulation to the Accounting Officer, it is the principal strategy setting group for the directorate, as well as the senior structure for agreeing operational policies and procedures.

Regulation Executive works to ensure that the deployment of resources is sufficient to maintain delivery of the Regulator’s fundamental objectives. Regulation Executive is supported by the Regulation Senior Leadership Team.

Each directorate has its own local governance / decision making arrangements in place and monitors its own risks in accordance with the HCA Risk Management Framework.

Key challenges

The key challenges faced by the HCA over 2016/17 were to:

■■ Work with the Department on its Housing White Paper commitment to consider the future of the Help to Buy Equity Loan scheme

■■ Administer and forecast the growth in demand for the Help to Buy scheme

■■ There were significant transitional data reporting issues created by the transition of business to a new Help to Buy Administrator. This resulted in a period of incorrect management information being provided to the Agency which has been resolved in preparing the financial statements but requires further work going forwards

■■ Implement the new organisation structure, to reshape the Agency, to meet the targets set in our housing priorities and make the significant required budget efficiency savings against a growing balance sheet at the same time as finding the balance between efficiency and capability



■■ Implement the outcomes of the Tailored Review recommendations and plan to deliver the new more challenging housing targets

■■ Maintain delivery of the land, affordable homes and recoverable investment programmes

■■ Respond to new Government policies such as Starter Homes and Accelerated Construction in an effective way

■■ Extend Direct Commissioning to the more ambitious goals of Accelerated Construction

■■ Continue to maintain effective delivery and achievement of corporate targets given the increasing scale and complexity of activities

■■ Monitor risk appetite and manage risk across all investment and land businesses

■■ Finalise the development of our new Digital Strategy to improve our information and decision making

■■ Support the Government’s devolution agenda to shift power from central to local government and promote sustainable balanced growth, by participating in joint land boards to identify opportunities to unlock strategic sites and align assets

■■ Preparation for the implementation of the International Financial Reporting Standard (IFRS) 9.

To improve accountability, responsibility and leadership I have introduced much clearer arrangements for the leadership and management of the Agency.

The Risk Management process

The Agency reviewed its Corporate Risk Management Framework and an update to this was approved by the Board in November this year. Following the recommendations of the HCA Review, the HCA has appointed a Chief Risk Officer to lead the Risk Directorate and provide the CRO function for DCLG. The Risk Directorate will further develop the risk framework and develop second line assurance and oversight over all programmes delivered by the Agency. The Risk Team has been strengthened to accommodate this additional activity and the Portfolio Management function has also strengthened its capabilities in respect of distressed debt management.

The HCA operates a number of programmes that are underpinned by the use of financial instruments such as loans, equity investments and financial guarantees. This exposes the HCA to significant financial and credit risk. The portfolio is immature and concentrated in a single sector that is susceptible to economic shocks. The investments are typically outside the appetite of other market investors and lenders. There is limited experience of how a market downturn would impact upon the portfolio, as well as a lack of historical data on arrears and defaults.

The Risk Directorate is responsible for operating within the DCLG’s Financial Risk Management framework and risk appetite statement.




Our approach to managing financial and credit risk in our portfolio

Identify

Review

Plan

Stress Monitor

Mitigate

MeasureGovernance

Setting AppropriateOversight

Whilst the management of credit risk continues to be strengthened, there remains a residual risk of impairment to the HCA’s financial assets that cannot be mitigated. An annual stress testing exercise has been in place since 2015 to help the Department and the HCA to measure and manage this risk, with the impact on the financial instrument portfolio tested in a number of severe but plausible economic scenarios. The outcomes of the testing will be used in future policy development and our contingency planning and to agree steps that could be taken to manage the HCA’s exposures in times of stress.

The Risk Management process is integrated and multi-layered within the HCA. It operates from both a top down perspective, through the identification of strategic risks and a bottom up process, through the identification of risks associated with individual projects, programmes and activities.

The Agency has been working towards an enterprise risk model and its risk reporting regime aims to manage risks and opportunities related to the achievement of the Agency’s objectives. It identifies these and assesses them in terms of likelihood and magnitude of impact, to ensure that responses to risks are effective and that emerging risks are escalated in a timely fashion.

In the coming year the Agency will progress the structured mapping of assurance, linking the sources of assurance to the risks that may threaten the achievement of the organisation’s objectives to build an assurance framework. An effective assurance framework will provide reliable information on risks which the organisation runs, the effectiveness of the control framework and an articulation of the residual risk for consideration by management as to whether this falls within the HCA’s risk appetite or requires further action.

The Board has also approved the amalgamation of the strategic and corporate operational risk register to form a new Corporate Risk Register, for the Agency to deal with the top risks facing the Agency across its operations.



Economic risks

As new and additional investment increases and diversified delivery mechanisms to support housing supply are introduced, this will increase the Agency exposures in the event of a downturn in the housing market. The output demands of the Agency have been agreed with Government for the duration of the Parliament. Government policy is subject to change, which can increase or decrease the funding of the HCA. Such changes can result from changed political priorities; changed levels of taxation collection; changed borrowing targets; and public expenditure.

Indirectly, our outputs are dependent on our suppliers, particularly contractors and house builders. Their costs of materials can change due to changes in inflation and exchange rates and the availability of land, raw materials and labour.

The Agency’s financial performance can also be directly affected by economic risks, particularly by movements in the housing market. The most significant impact is on investments under the Help to Buy scheme, and the sensitivity of the valuation of these investments to house prices. However the annual valuation and bi-annual stress tests inform and anticipate how the portfolio responds to changes in macro indicators and is keeping the impact of this under regular review.

Delivery risks

Programme delivery risks are identified at an individual programme level and are subject to on-going review and management through the relevant Programme Boards and the management teams operating throughout the HCA.

The increase in the recoverable investment portfolio has exposed the Agency and DCLG to substantial financial risk. The Investment function is the primary owner of the risk inherent in this portfolio. The Risk Directorate is responsible for providing second line assurance and credit risk approvals of investments in line with the delegated authority schedules.

Information Security risk

The Senior Information Risk Owner has confirmed that the profile of information risk compliance with HM Government’s Security Policy Framework and other regulatory requirements continues to improve. No incidents for lost / stolen hardware were reportable to DCLG and no incidents were reported to the Information Commissioner during the year as no personal data was lost.

Improvements which have been made during the year include a zero tolerance approach taken towards Information Security training, use of Netconsent which helps ensure staff comply with Information Security policies, proactive monitoring and reporting via Information Security monthly and accreditation on two new IT systems to ensure risks have been identified and pragmatic security controls are in place.

To ensure system security and provide assurance to Board Members the HCA have introduced monthly vulnerability scans on user endpoints and servers.

The system of internal control

The system of internal control is designed to manage risk to an acceptable level rather than to eliminate all risk of failure to achieve policies, aims and objectives. It can, therefore, only provide reasonable and not absolute assurance of effectiveness.




The system of internal control is based on an on-going process designed to identify and prioritise the risks to the achievement of the organisation’s policies, aims and objectives, to ensure the safeguarding of assets, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically. The system of internal control has been in place in the HCA for the year.

Key control systems

The HCA operates a range of key controls covering policies and procedures, resource allocation, appraisal methodologies, IT systems, reporting routines, delegations of authority and many others to mitigate risks to within acceptable levels.

The most significant of these are the:

■■ Corporate and business planning processes which set out the HCA’s objectives and resource allocation, and establish budgets and targets against which performance is ultimately judged

■■ IT systems which embed many of the HCA’s key controls. The two major investment systems are the Investment Management System (IMS), which controls the operation of the Affordable Housing Programmes and the Project Control System (PCS), which controls the operation of all project related programmes. Both of these interface with E-Financials, which is the overarching finance system dealing with all accounting records, payments to suppliers and partners and the billing and collection of income. There are other systems covering assets, personnel and pay, spatial information, records, management of consultants and many others dealing with specific aspects of HCA business

■■ Customer Relationship Management (CRM) system which helps staff manage interactions with registered providers

■■ Financial and statistical data from private registered providers collected through NROSH+. This is a single web-based portal for providers to submit the regulatory returns and supporting documentation required to enable regulation of the economic standards

■■ Reporting and monitoring routines established for all investment programmes, projects and operating costs. These enable progress to be tracked, forecasts to be made and corrective action to be taken where this is deemed necessary.

Business critical models

The HCA has identified a number of business critical models, which it uses to help effective programme delivery and allow risk based and proportionate regulation.

The Macpherson Report on Business Critical Models (2013) highlighted the need to have strong quality assurance processes in place for all business critical models.

Significant progress has been made in developing and implementing a control framework to improve the management of spreadsheet risk and this work is ongoing. The framework applies to all business critical files, including, but not limited to, spreadsheets.



Significant control issues

Significant control issues can be identified through Internal Audit formal reviews, in year observations, investigations, risk events / reported ‘near misses’ or identified by management through completion of their half yearly and annual Management Assurance Statements. Significant issues arising through formal Internal Audit reviews are captured in the Internal Audit section.

Investigations

I am made aware of all incidents and investigations as and when they occur and a formal report in relation to Fraud and Error is prepared by the Head of Internal Audit and submitted to the Audit and Risk Committee on an annual basis. In the assurance year 2016-17 no losses due to fraud have been identified.

Risk events / Near misses

In February 2017, an incident occurred in relation to the correct processing of sales redemptions. The Help to Buy Administrator made an error in the collection of sales proceeds by using the pre sales valuation rather than actual sales proceeds which is now being corrected. The processing procedures of the Agent were immediately revised and we are satisfied that the control environment error has been corrected.

In addition a project that required additional support after it went into distress has highlighted the current limitations of the delegations framework to enable the Agency to act quickly and effectively to manage investment risks. The Agency will continue to work itself and with the Department to improve the clarity and flexibility of our delegations in this respect.

Independent assurance arrangements

The HCA has an Internal Audit Team which provides independent assurance across all of the HCA’s governance, risk and control arrangements, and operates in accordance with Public Sector Internal Audit Standards. Although the Internal Audit Team is positioned within the Finance and Corporate Services Directorate, the independence of the team is facilitated through the Head of Internal Audit’s direct operational reporting line to the Accounting Officer. The HCA is also subject to external audit by the NAO.

Whistleblowing

The published policy includes contact details for HCA staff, the nominated Board Member and external bodies, such as the NAO, who can be contacted by an employee to make a disclosure under the whistleblowing policy. As staff are encouraged to raise matters informally to their line managers first (if they wish), the lack of more formal reports is not considered to be a weakness in the policy.

NAO reviews

The HCA provided information to a number of reports issued by the NAO during the year.

A number of these reviews were wide ranging, cross Government reviews and did not raise any specific recommendations for the HCA. These included:

Extending the Right to Buy – 30 Sept 2016

Disposal of Public Sector Land – 30 Sept 2016

NAO Housing Overview Report – 26 Jan 2017




Review of effectiveness

As Accounting Officer, I have responsibility for reviewing the effectiveness of the system of internal control. My review of the effectiveness of the system of internal control has been informed by the work of Internal Audit, the assurances provided by the Chief Officers and Executive Directors of the HCA who collectively and individually have responsibility for the development and maintenance of the internal control framework through their management

I have also received Assurance Statements and comments from the NAO acting as external auditors in their management letter and other reports.

The system of internal control is subject to on-going review, and this process is coordinated and managed through the Audit and Risk Committee, who in turn provide both regular feedback to the main Board and an annual report and overall opinion on the system of internal control.

The Audit and Risk Committee bases its judgment on the reports and opinions of Internal Audit, updates provided by the National Audit Office, internal risk reports, externally commissioned reviews, reports on the preparation of the Financial Statements and reports from the Senior Information Risk Officer.

Internal Audit has performed a programme of independent and objective reviews in accordance with Public Sector Internal Audit Standards and other work to provide assurance on risk management, governance and the system of internal control. Internal Audit have a risk based approach to the preparation of their plan of work for the year, utilising the Agency’s own risk information, other sources of assurance, results of previous work, data in relation to future activity, as well as detailed consultation with the Accounting Officer, HCA Directors, Audit and Risk Committee members and key stakeholders such as DCLG and the NAO. The programme of work is kept under continual review and is revised in year as appropriate to ensure that this remains aligned with the Agency’s risk profile and assurance requirements. The outcome of Internal Audit work is regularly reported to me, the Audit and Risk Committee, the NAO and DCLG. There is a rigorous process in place to follow up the implementation of actions agreed as part of their work.

Internal Audit

The Internal Audit team issued 33 final reports to date, relating to the work plan period April 2016 to March 2017, on which they expressed an opinion. These have provided an overall moderate opinion for the year.

These are as follows:

Level of Assurance Number of ReviewsSubstantial 13Moderate 15Limited 5Unsatisfactory 0

Internal Audit have highlighted within the reports issued to date, areas within the overall control framework which are considered insufficient to manage the associated risks. Limited Assurance reviews are summarised below together with specific issues considered to be of high priority which have been identified in reviews where a higher level of assurance was provided.



Investment Recovery System (IRS)

Although the review provides positive assurance in relation to the system functionality which calculates the interest due and balances on individual loans, Internal Audit work does highlight that there is a need to improve the control frameworks which support the system with recommendations designed to clarify how and by who the system is used (definition of responsibilities, provision of guidance for use, improvements in access control); improve the robustness of data within the system (through data integrity checking); and deter and detect instances of fraud and error.

Credit Risk

Key issues identified within the review related to the arrangements in place for the maintenance of Counter-party risk rating by Portfolio Management; use of this more widely across the Agency, not only within Investment, to influence decision making within other Directorates entering deals with potential partners; and the capacity and capability of systems. All of these areas are known areas for improvement and are being actively addressed. Whilst it is recognised that existing controls are considered sufficient until a permanent IT solution is progressed, these be reviewed again in the event of a delay to the delivery of the IT system or a significant increase in the level of applications progressed within the Investment function.

Housing Growth Fund

Key issues identified within the review are concerned with the level of management oversight activity to date, enabling greater visibility and therefore on-going assurance that risks are being effectively managed.

A key part of this is sharing the details of assurance activity undertaken within the Partnership and the outputs from this and following completion of Internal Audit work in this area, management has initiated dialogue with partner colleagues to explore the provision of this information.

Post Deal and Recovery

The review highlighted insufficient improvement in operational practice since the previous review in 2015-16 to warrant raising the previous limited opinion. Findings related predominantly to where improvements could be made in relation to visibility of developer performance.

Risk Management

The 2016-17 independent review of Corporate Risk Management focused on the overall arrangements in place for the identification, evaluation and reporting of the Agency’s risks. The report is still being finalised however the issues within the report have been widely discussed and there is positive consensus of the steps required to strengthen effective responsibility and accountability, review and update the risk management framework, develop the assurance strategy and co-ordinate the sources of assurance, improve utilisation of risk management operations and data quality and ensure the provision of focused and timely risk management intelligence to support the delivery of the business. This will now be taken forward by the newly established Risk Directorate.




Fraud Risk Assessment

In 2016/17, Internal Audit has undertaken an assessment in line with the Cabinet Office evaluation model of fraud risk within the HCA. This was required in order to support the selection process for the 2016/17 fraud and error random sampling work. In completing this assessment, audit took the opportunity to identify potential areas for future years.

The 2016/17 review of risk management also gave specific consideration of fraud risk when reviewing the quality of risk registers.

Future challenges

The Agency will be required to play a substantial lead role in the delivery of the Government’s housing ambitions and this will require a significant focus of resources to meet this agenda.

In terms of the new land programmes, the Secretary of State has referred repeatedly to accelerating construction, including in the recent White Paper and is looking to the Agency to intervene in the market and pilot new approaches to housing delivery, such as offsite modular building, to increase pace as well as continuing with the pilots on direct delivery. Our relationship with the other government departments (OGD’s) has changed, as the expectation is that the Agency will take on more OGD land and more risk for Accelerated Construction.

In addition, the Agency will have a new trading name ‘Homes England’ to promote our more activist role in the market, as the government’s housing delivery agent and to support our more active market engagement with existing partners, new entrants, innovators and SME’s – all with the aim of increasing the pace of home delivery and encouraging more competition in the market.

Conclusion

Based on the content of this report, assurances I have received from senior management and the reports from internal and external auditors, I am satisfied that appropriate governance arrangements were in place during 2016/17.

Nick Walkley Accounting Officer Homes and Communities Agency 22 June 2017



THE ACCOUNTABILITY REPORTREMUNERATION AND STAFF REPORT

Constitution of the Nominations and Governance Committee

The Nominations and Governance Committee consists of the following HCA Board Members:

■■ Sir Edward Lister (Chairman)

■■ Julian Ashby

■■ Dr Ann Limb

Functions and responsibilities

The Nominations and Governance Committee is required to:

■■ Advise the Chairman, the Board, and the HCA’s Accounting Officer on overall pay and rewards, the remuneration, contractual and pension arrangements of staff at Director level and above, and any related matters

■■ Recommend the appointment or dismissal of the Chief Executive to the Board

■■ Set and agree annual performance objectives, remuneration terms and other terms and conditions of employment of the Chief Executive, subject to DCLG approval

■■ Consider and approve the incentive structure, including any bonus payment, for the Chief Executive and other Senior Officers on an annual basis, subject to DCLG approval

■■ Consider and advise the Board on broader staffing issues, such as recruitment and retention, ensuring there are satisfactory systems for succession planning for the Board and senior leadership and for identifying and developing leadership and high potential

■■ Monitor and approve the Agency’s staffing situation against the organisational structure and revenue budget agreed by the Board, and in relation to any directions laid down by DCLG

■■ Review terms and conditions of service and to determine any issues in relation to terms and conditions, overall pay levels and performance awards that are referred to the Committee by the Executive

■■ Scrutinise governance arrangements within the HCA at least once a year.

Remuneration policy

The Agency determines remuneration levels to attract and retain key management personnel with appropriate experience and skills to meet the Agency’s objectives.

The performance of the Agency’s key management team is measured through both financial and non-financial indicators. In line with the Agency’s performance policy, employees agree annual performance objectives which are reviewed mid-year and provide the basis for a formal annual appraisal which is linked to the payment of performance bonuses.

Key managers are entitled to a contribution by the Agency to a defined benefit pension scheme.

The Agency implements an annual pay remit which is approved by the Secretary of State. In 2016/17 the maximum pay increase for key management was one per cent.



THE ACCOUNTABILITY REPORTREMUNERATION AND STAFF REPORT (CONTINUED)

Service contracts

The Accounting Officer, Directors and other senior managers have open-ended service contracts with three month notice periods that do not contain any pre-determined compensation on termination of office.

Appointment of Board Members

Board Members are appointed by the Secretary of State, normally for fixed terms of three years. Terms may be extended at the discretion of the Secretary of State.

Audited remuneration information

The following information provides details of the remuneration and pension interests of Board Members, Regulation Committee Members and Key Managers in their capacity as employees of the HCA for the year to 31 March 2017.

Board Members’ emoluments2016/17

£’0002015/16

£’000ChairmanRobert Napier (to 31 December 2015)1 - 65Kevin Parry (Interim Chairman)2 13 13Sir Edward Lister (from 27 June 2016)3 52 -Board Members Kevin Parry (to 31 January 2017)2 7 9Julian Ashby4 65 65Keith House 12 12Richard Hyde (to 31 October 2015)5 - 7Dr Ann Limb 12 12Bob Lane (to 31 December 2015)5 - 10Anthony Preiskel8 13 12Ian Robertson (to 30 September 2016)6 12 24Niall Mills 12 12Stephen Bell (from 1 February 2017)7 4 -Simon Dudley (from 1 February 2017)5 2 -Teresa O’Neill (from 1 February 2017)5 2 -Richard Blakeway (from 1 February 2017)5 2 -



Regulation Committee emoluments

The Regulation Committee was established on 1 April 2012 under the provisions of the Localism Act 2011. Its members and their emoluments were as follows:

2016/17 £’000

2015/16£’000

Julian Ashby (Chair)4 - -Richard Moriarty 11 11Jonathan Adlington (to 31 March 2016) - 11Ceri Richards 11 11Sarah Wall 11 11Simon Dow (from 1 April 2016) 11 -1 Full year equivalent emoluments in 2015/16 were £87,000.2 Kevin Parry was appointed a Board member on 1 July 2014 and then appointed Interim Chairman with effect from 1 January 2016 until 26 June 2016. From 1 July 2016 he

resumed his role as Board member until 31 January 2017. Full year equivalent emoluments in his capacity as Board member in 2016/17 and 2015/16 were £12,000, whilst full year equivalent emoluments in his role as Interim Chair in 2015/16 were £52,000. The two separate entries in this disclosure reflect his remuneration received whilst a Board member and whilst the Interim Chair.

3 Full year equivalent emoluments in 2016/17 were £68,000.4 In addition to being a Board Member, Julian Ashby is the Chairman of the Regulation Committee. His emoluments as disclosed under Board Members cover both membership of

the Board and Regulation Committee. 5 Full year equivalent emoluments were £12,0006 Ian Robertson’s remuneration includes an additional 20 days per annum to reflect his role as Chairman of the Audit and Risk Committee in addition to being a Board Member,

until his departure on the 30 September 2016. Full year equivalent emoluments in 2016/17 were £24,000.7 In addition to being a Board Member, Stephen Bell is the Chairman of the Audit and Risk Committee. He is also the Agency’s representative on DCLG’s Audit and Risk Committee.

Full year equivalent emoluments in 2016/17 were £22,000. 8 In addition to being a Board Member, Anthony Preiskel was appointed the Chairman of the Credit and Risk Committee with effect from 1 February 2017. Full year equivalent

emoluments in 2016/17 were £17,000.

Chief Executive’s emoluments

Single total figure of remuneration

Chief ExecutivesSalary received in year (£’000)

Bonus payments

(£’000)

Benefits in kind (to nearest

£100)

Pension benefits (£’000) Total (£’000)

2016/ 17

2015/ 16

2016/ 17

2015/ 16

2016/ 17

2015/ 16

2016/ 17

2015/ 16

2016/ 17

2015/ 16

Andrew Rose1 n/a 155-160

n/a nil n/a nil n/a n/a n/a 155-160

Colin Molton2 (acting Chief Executive)

nil nil nil nil nil nil nil nil nil nil

Mark Hodgkinson 3

(Interim Chief Executive)155-160

n/a nil n/a nil n/a n/a n/a 155-160

n/a

Nick Walkley 4

(Chief Executive)15-20 n/a nil n/a nil n/a 4 n/a 20-25 n/a

1 Andrew Rose left his role as Chief Executive on the 22 March 2016. Full year equivalent emoluments for 2015/16 were £162,000.2 Colin Molton was appointed acting Chief Executive, following the resignation of Andrew Rose, with effect from 23 March 2016 until the appointment of Mark Hodgkinson

as interim Chief Executive on 11 April 2016. Prior to this he was the Deputy Chief Executive. For the time spent as acting Chief Executive he did not receive any additional remuneration above his substantive salary. Disclosure of his remuneration in his substantive role is included in the Key Managers section.

3 Mark Hodgkinson was appointed on 11 April 2016 as Interim Chief Executive until 31 March 2017. Full year equivalent emoluments for 2016/17 were £160,000.4 Nick Walkley was appointed on 1 March 2017 as a permanent Chief Executive. The remuneration presented here is his remuneration for the period 1 March 2017 to

31 March 2017. Full year equivalent emoluments for 2016/17 were £210,000.




Key Managers’ emoluments

Single total figure of remuneration

Key ManagersSalary received in year (£’000)

Bonus payments

(£’000)1


£100)

Pension benefits

(£’000)* Total (£’000)2016/

172015/

162016/

172015/

162016/

172015/

162016/

172015/

162016/

172015/

16Matthew BailesExecutive Director,Regulation (to 31 August 2015)2

n/a 50-55 n/a nil n/a 1,800 n/a 7 n/a 55-60

Richard EnnisExecutive Director, Finance andCorporate Services

165-170

160-165

nil nil 9,000 8,300 59 27 235-240

195-200

Colin Molton Chief Operating Officer

150-155

140-145

nil nil 5,500 6,700 58 19 210-215

165-170

Terry FullerExecutive Director,East and South East (to 31 December 2016)3

110-115

145-150

nil nil 3,000 3,500 30 31 145-150

180-185

Deborah McLaughlinExecutive Director,North West (from 1 February 2016 to 9 November 2016)4

75-80 20-25 nil nil 3,200 800 35 20 115-120

40-45

Naz ParkarExecutive Director,North East, Yorkshire and The Humber (to 31 December 2016)5

90-95 120-125

nil nil 4,100 5,100 32 34 125-130

160-165

Fiona MacGregor Executive Director, Regulation6

125-130

120-125

nil nil nil nil 49 28 175-180

145-150

Gordon More Chief Investment Officer7

255-260

255-260

nil nil nil nil nil nil 255-260

255-260

Christine Addison Interim Executive Director Corporate (from 1 February 2016)8

90-95 120-125

nil nil nil nil 22 27 110-115

145-150

Karl Tupling Interim Executive Director, Midlands (to 31 December 2016)9

75-80 100-105

nil nil 3,800 4,500 25 12 105-110

115-120



Key ManagersSalary received in year (£’000)

Bonus payments

(£’000)1


£100)

Pension benefits

(£’000)* Total (£’000)2016/

172015/

162016/

172015/

162016/

172015/

162016/

172015/

162016/

172015/

16Jackie JacobInterim Executive Director, Programmes (from 1 July 2015 to 31 December 2016)10

75-80 75-80 nil nil nil nil 23 22 100-105

95-100

Bayo DosunmuDirector of Strategy and Chief of Staff(from 1 January 2017)11

25-30 n/a nil n/a 1,500 n/a 7 n/a 35-40 n/a

Dominic GortonChief Risk Officer(from 1 January 2017 to 22 January 2017)12

10-15 n/a nil n/a nil n/a nil n/a 10-15 n/a

Chantal GeallChief Risk Officer(from 23 January 2017)13

40-45 n/a nil n/a nil n/a 7 n/a 45-50 n/a

* The pension benefits figure is an actuarially assessed calculation. It is calculated as the movement in the capitalised value of accrued pension less contributions made by the employee. It attempts to reflect the benefits earned by the employee during the year from the scheme and is impacted by salary fluctuations and length of service.

1 Bonuses disclosed relate to performance for the year ended 31 March 2017. 2 Matthew Bailes left 31 August 2015. Full year equivalent emoluments for 2015/16 were £121,000.3 Terry Fuller was Executive Director for the East and South East until the Agency’s restructure and then became a General Manager for Large & Priority Projects, effective from the 1

January 2017. From this point he is no longer considered to be a Key Manager. Full year equivalent emoluments for 2016/17 whilst as a Key Manager were £149,000.4 From 1 February 2015 until 31 January 2016, Deborah McLaughlin was seconded to Manchester City Council, who were recharged the full cost of employment for the period on

secondment. She subsequently left the Agency on 9 November 2016. Full year equivalent emoluments were £125,000 for 2015/16 and £128,000 for 2016/17.5 Naz Parkar was the Executive Director for the North East, Yorkshire and The Humber until the Agency’s restructure, effective from 1 January 2017. From this point, and for the purpose

of this disclosure note, he was no longer considered to be a Key Manager. He subsequently left the Agency on 20 January 2017. Full year equivalent emoluments for 2016/17 were £124,000.

6 Fiona MacGregor was Director of Programmes until 1 July 2015 when she became Interim Executive Director of Regulation, to be then appointed to this role on a permanent basis from 1 November 2015.

7 Gordon More was engaged on an ongoing secondment to the Agency from his employer, Lloyds Banking Group plc, until 31 March 2017 at an annual cost of £213,000 plus VAT. The costs disclosed in the salary column above are the total invoiced costs including irrecoverable VAT of secondment to the Agency under the terms of the agreement in place with his employer, and accordingly include allowance for costs such as VAT, pensions and social security which are not included for other, directly-employed, Key Managers. Prior to the restructure he was not a director of the Agency, but had delegations similar to those of the Agency’s directors, and was therefore included in the disclosure table above as a Key Manager. However, following the restructure he was recruited into a permanent position, effective on 1 April 2017.

8 Christine Addison was Executive Director for the Midlands until 31 January 2016. Thereafter she became Interim Executive Director in a Corporate role, tasked with implementing the Spending Review outcomes and responding to the Tailored Review, until the restructure from which point, and for the purpose of this disclosure note, she was no longer considered a Key Manager. She subsequently left the Agency on 31 March 2017. Full year equivalent emoluments for 2016/17 were £122,000.

9 Karl Tupling was Interim Executive Director for the North West until 31 January 2016, at which point he became the Interim Executive Director for the Midlands until the Agency’s restructure which took effect from 1 January 2017. From this point, and for the purpose of this disclosure note, he is no longer considered to be a Key Manager. Full year equivalent emoluments for 2016/17 whilst as a Key Manager were £103,000.

10 Jackie Jacob was the Interim Executive Director for Programmes until the Agency’s restructure which took effect from 1 January 2017. From this point, and for the purpose of this disclosure note, she is no longer considered to be a Key Manager. Full year equivalent emoluments for 2015/16 were £103,000 and were £105,000 for 2016/17 whilst as a Key Manager.

11 Full year equivalent emoluments for 2016/17 whilst as a Key Manager were £115,000.12 Dominic Gorton was engaged on an ongoing secondment to the Agency from his employer, HSBC, until 22 January 2017 at an annual cost of £200,000 plus VAT. The costs disclosed

in the salary column above are the total invoiced costs including irrecoverable VAT of secondment to the Agency under the terms of the agreement in place with his employer, and accordingly include allowance for costs such as VAT, pensions and social security which are not included for other, directly-employed, Key Managers. Prior to the restructure he was not considered a Key Manager. However, following the restructure the role has been reclassified as a Key Manager.

13 Full year equivalent emoluments for 2016/17 were £210,000.




Salary

Basic salaries are determined by taking into account each individual’s responsibilities, performance against agreed objectives and experience together with market trends.

The Secretary of State determines the Board Members’ emoluments.

Performance related pay

The Chief Executive and Key Managers benefit from a performance related pay scheme whereby any bonuses are determined with reference to performance against agreed objectives during a performance year running from April to March. The bonus cannot exceed 10 per cent of salary, and is the only element of pay that is performance related.

For all other employees, the HCA complies with the direction from the Secretary of State for eligibility of a performance related bonus.

The Chairman is not eligible for performance related payments or other taxable benefits as a result of his appointment.

The Chief Executive has an entitlement to an annual performance related bonus based upon the achievement of targets agreed by the Nominations and Governance Committee. The Committee reviews performance against targets and recommends a performance related bonus for approval by the Secretary of State.

For the performance years ended 31 March 2016 and 2017 the Directors all agreed not to receive a bonus.

Benefits in kind

The monetary value of benefits in kind covers any benefits provided by the employer and treated by HM Revenue and Customs as a taxable emolument. They are in respect of lease cars.

Termination payments

Termination payments to Key Managers in 2016/17 were £nil (2015/16: £nil). However, both Naz Parkar and Christine Addison were offered voluntary redundancy following the Agency restructure. Naz Parkar left the Agency on 20 January 2017 and received a redundancy payment of £95,000. Christine Addison left the Agency on 31 March 2017 and received a redundancy payment of £95,000.

Staff composition

The average number of staff employed by the Agency (full time equivalents) over the course of the year is as follows:

2016/17Number

2015/16Number

Permanent UK staff 779 869Fixed term UK staff 35 30Temporary staff 10 5Seconded staff 5 8

829 912



The number of staff (full time equivalents) by salary pay band, using an average for the year, is as follows:

2016/17Number

2015/16Number

£0 – £25,000 97 127£25,001 – £50,000 404 446£50,001 – £75,000 260 272£75,001 – £100,000 44 45£100,001 – £125,000 15 14£125,001 – £150,000 7 6£150,001 – £175,000 2 2£175,001 – £200,000 0 0£200,001 – £225,000 0 0

829 912

Gender analysis

The gender of Key Managers and employees can be analysed as follows:

2016/17Number

2015/16Number

Key Managers – Male 5 7 Key Managers – Female 2 4 Key Managers 7 11

Other employees – Male 415 446 Other employees – Female 407 455Other employees 822 901

829 912

Median salary

The Agency is also required to disclose the relationship between the mid-point of the banded remuneration of the highest-paid Director and the median remuneration of the Agency’s workforce for the year, using a position as at the end of March 2017. The banded remuneration of the highest-paid Directors, Nick Walkley and Chantal Geall, was £210,000 – £215,000 (2015/16: £170,000-£175,000 for Richard Ennis). The mid-point of this band was 4.4 times (2015/16: 3.8) the median remuneration of the workforce, which was £47,848 (2015/16: £45,000). Remuneration ranged from £12,649 to £210,000 (2015/16: £7,800 to £170,425) on the basis of total remuneration including benefits in kind. The starting range salary represents the paid remuneration of an apprentice. Once apprentices are excluded, remuneration ranged from £16,120 to £210,000 (2015/16: £16,202 to £170,425).




Total remuneration includes salary, non-consolidated performance-related pay and benefits-in-kind. It does not include severance payments, employer pension contributions or the cash equivalent transfer value of pensions.

Gordon More is disclosed in the Key Manager’s single total figure of remuneration above as having received a salary in the range £255,000 – £260,000. This is the total invoiced cost, including VAT, of secondment to the Agency under the terms of the agreement in place with his employer, and accordingly includes allowance for costs such as pensions and social security which are not included for other, directly-employed, Key Managers. For indirectly employed staff, an allowance is required to be made to estimate a salary equivalent, and once such an allowance has been made, Gordon More is not the highest paid director.

Exit packages

Redundancy and other departure costs have been determined in accordance with a voluntary redundancy scheme approved by DCLG, the Agency’s sponsor department. Exit costs are accounted for in full when the departure has been approved and terms agreed.

However, during the course of 2016/17 the Agency undertook a restructuring exercise to re-align the business to accommodate emerging priorities and to deliver efficiency savings required under the Spending Review. A Voluntary Redundancy scheme was introduced and, in total, 99 departures were agreed under this scheme, with accepted applicants leaving on or before 31 March 2017.

Voluntary redundancy costs accounted for in the year can be analysed as follows:

2016/17Departures

agreedNumber

2015/16Departures

agreedNumber

£0 – £10,000 6 2£10,001 – £25,000 8 14£25,001 – £50,000 27 26£50,001 – £100,000 58 27£100,001 – £150,000 - 4Total number of exit packages 99 73

Total cost of exit packages (£’000) 5,969 3,684

Sickness absence

The employee sickness absence rate for 2016/17 was 1.57% of working days (2015/16: 1.62%).

Expenditure on consultancy

During the year the Agency incurred expenditure of £11,500 on consultancy as defined by the Cabinet Office (2015/16: £8,150).



Staff policy regarding disabled persons

The Agency participates in the Two Ticks scheme run by Jobcentre Plus. The scheme requires employers to meet five commitments regarding the employment, retention, training and career development of disabled employees. It is represented by the two ticks disability symbol that participating organisations are authorised to display.

HCA has an Equality and Diversity Board Advisory Group (EDBAG) that works with the Agency Board to support the delivery of our corporate policy commitment to equality, diversity and community cohesion. HCA also supports a Staff Equality Network which supports and addresses a wide range of equality and diversity issues including disability. In the event that any employee becomes disabled whilst employed by the HCA, the Agency’s Health and Safety and Facilities teams, supported by the Agency’s Occupational Health provider, would make all reasonable and appropriate changes and adjustments to the workplace and working arrangements.

Pension benefits

Chief Executive and Accounting Officer

Colin Molton was the acting Chief Executive until 11 April 2016. Prior to this, he was the Deputy Chief Executive and Executive Director South and South West. For the time spent as acting Chief Executive he did not receive any additional remuneration or pension benefits above his substantive salary. Disclosure of his pension benefits in his substantive role is included in the Key Managers section. He is a member of the Homes and Communities Agency Pension Scheme.

Mark Hodgkinson was the interim Chief Executive from 11 April 2016 to 31 March 2017. He was not a member of any pension scheme.

Nick Walkley was appointed as the permanent Chief Executive on 1 March 2017. He is a member of the Homes and Communities Agency Pension Scheme.




Key Managers

Accrued annual

pension at31 March

2017 £’000

Real increase

in accrued annual

pension£’000

Accrued lump sum

at 31 March 2017

£’000

Real increase/

(decrease) in accrued lump sum

£’000

CETV31 March

2017

£’000

CETV31 March

2016Restated*

£’000

Real increase/

(decrease) in CETV

£’000Nick Walkley1 0 0 1 1 6 0 5Richard Ennis 49 3 147 9 1,451 1,363 78Terry Fuller2 16 2 47 6 458 399 50Deborah McLaughlin3 45 2 134 6 1,331 1,289 34Colin Molton 61 3 183 9 1,836 1,766 62Naz Parkar2 18 2 0 0 220 180 28Fiona MacGregor 37 3 50 1 612 550 48Christine Addison2 4 2 11 5 110 64 39Karl Tupling2 48 14 145 42 1,428 1,024 397Jackie Jacob2 44 12 79 20 765 571 182Bayo Dosunmu4 3 2 9 5 88 44 37Chantal Geall1 0 0 1 1 12 0 101 Nick Walkley and Chantal Geall were appointed to the role of Key Manager during the year. As they commenced employment with the Agency in the year, their CETV for last year is

£nil.2 Terry Fuller, Naz Parkar, Christine Addison, Karl Tupling and Jackie Jacob ceased to be key managers during the year. With the exception of Naz Parkar who left the Agency on

20 January 2017, they remained employed by the Agency for the full year. 3 4

Deborah McLaughlin left the Agency and pension scheme on 9 November 2016. Her pension benefits have been calculated to the date of departure.Bayo Dosunmu was appointed to the role of Key Manger on 1 January 2017 although he was employed by the Agency throughout this year and last year. His pension benefits therefore relate to his full employment with HCA.

*Restated using 31 March 2017 pension factors.

The Chief Executive and Key Managers are eligible to participate in the Homes and Communities Agency Pension Scheme, which is a multi-employer defined benefit scheme. The Chairman is not entitled to be a member of any of the Agency’s pension schemes. With the exception of Fiona MacGregor and Jackie Jacob, who are active members of the City of Westminster Pension Fund and Naz Parkar who was an active member of that Scheme until the date of his departure from the Agency on 20 January 2017, all Key Managers in post at 31 March 2017 are active members of the Homes and Communities Agency Pension Scheme.

Accrued pension at 31 March 2017

The accrued pension entitlement is the pension which would be paid annually on retirement, based upon pensionable service to 31 March 2017.

Cash Equivalent Transfer Value (CETV) 31 March 2017

The transfer values are the actuarially assessed capitalised value of pension scheme benefits. It is an amount payable by a pension scheme or arrangement to secure pension benefits in another pension scheme or arrangement when the member leaves a scheme and chooses to transfer the benefits accrued in their former scheme. The figures shown relate to benefits that the individual has accrued as a consequence of their total membership of the pension scheme and not just the service in a senior capacity to which disclosure applies.



THE ACCOUNTABILITY REPORTPARLIAMENTARY ACCOUNTABILITY AND AUDIT REPORT

Regularity of expenditure

In accordance with the provisions of the Accounts Direction, the Agency has summarised all losses and special payments requiring disclosure, recognised during the course of the financial year, as follows.

2016/17 2015/16Cases £’000 Cases £’000

Total of all losses and special payments 248 18,610 140 2,825Cases over £300,000:Loans written off 2 16,464 1 1,463Receivables written off 1 2,018 1 745

18,482 2,208

Losses on loans

a) £15.4m – The Agency contracted loans under the Kickstart and Get Britain Building schemes in 2010 to fund a large residential development. The borrower subsequently experienced funding difficulties and the site stalled. The borrower is now in administration following the purchase of senior-ranking debt by a third party, so the Agency’s security is no longer sufficient to cover the full value of the outstanding loans. It is now considered that there is no longer a realistic prospect of recovery of £15.4m of the balance owing. Full provision had been made for this loss in previous years, so no further charge was recognised in expenditure in 2016/17.

b) £1.1m – The Agency contracted a loan in 2010 to fund a stalled mixed-use development. Sales of completed units did not produce the anticipated levels of income and the Agency was offered a partial settlement in order to permit the sale of the remainder of the completed units. Subsequent developments have not resulted in an improvement to the borrower’s financial position, and there is no longer a realistic prospect of recovery of the balance of £1.1m. Full provision had been made for this loss in previous years, so no further charge was recognised in expenditure in 2016/17.



THE ACCOUNTABILITY REPORTPARLIAMENTARY ACCOUNTABILITY AND AUDIT REPORT

Losses on receivables

During the year the Agency crystallised a £2.0m loss on a receivable due in relation to a property sold on deferred payment terms by a predecessor organisation. The purchaser experienced financial difficulties and a liquidator was ultimately appointed. The Agency has now recovered part of the outstanding debt via the sale of a property within the wider site, but there is no longer a realistic prospect of recovery of the balance. Provision had been made for substantially all of this loss in previous years, so no significant further charge was recognised in expenditure in 2016/17.

Fees and charges

The Agency may, from time to time, charge a fee for services provided. Where applicable, services are charged at full cost and therefore result in no attributable surplus or deficit. During the year, the Agency provided legal services to other parties. The amounts included in Other Operating Income for the year are £31,000.

Remote contingent liabilities

The Agency is required to disclose each of its material remote contingent liabilities, and where practical, estimate the financial effect. The Agency does not have any material contingent liabilities other than those disclosed in the Financial Statements.

Long term expenditure trends

HCA is required to disclose spending patterns on key programme and major policy areas. The below information shows expenditure, on a DEL basis, across the Agency’s key programmes for 2016/17 and the previous four years.



Further information about the Agency’s operational performance is disclosed in Note 14 to the Financial Statements.

The Accountability Report is signed on 22 June 2017.




THE ACCOUNTABILITY REPORTTHE CERTIFICATE AND REPORT OF THE COMPTROLLER AND AUDITOR GENERAL TO THE HOUSES OF PARLIAMENT

I certify that I have audited the financial statements of the Homes and Communities Agency for the year ended 31 March 2017 under the Housing and Regeneration Act 2008. The financial statements comprise: the Group and Parent Statements of Comprehensive Net Expenditure, Financial Position, Cash Flows, Changes in Taxpayers’ Equity; and the related notes. These financial statements have been prepared under the accounting policies set out within them. I have also audited the information in the Remuneration and staff report and the Parliamentary accountability disclosures that is described in those reports as having been audited.

Respective responsibilities of the Board, Accounting Officer and auditor

As explained more fully in the Responsibilities of the Accounting Officer Statement, the Accounting Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. My responsibility is to examine, certify and report on the financial statements in accordance with the Housing and Regeneration Act 2008. I conducted my audit in accordance with International Standards on Auditing (UK and Ireland). Those standards require me and my staff to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the Audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the Homes and Communities Agency’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Homes and Communities Agency; and the overall presentation of the financial statements. In addition I read all the financial and non-financial information in the Performance Report and the Accountability Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by me in the course of performing the audit. If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my certificate.

I am required to obtain evidence sufficient to give reasonable assurance that the expenditure and income recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Opinion on Regularity

In my opinion, in all material respects the expenditure and income recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Opinion on Financial Statements

In my opinion:

■n the financial statements give a true and fair view of the state of the group’s and of the Homes and Communities Agency’s affairs as at 31 March 2017 and of the group’s and the parent’s net expenditure for the year then ended; and

■n the financial statements have been properly prepared in accordance with the Housing and Regeneration Act 2008 and Secretary of State directions issued thereunder.



Opinion on other matters

In my opinion:

■n the parts of the Remuneration and staff report and the Parliamentary accountability disclosures to be audited have been properly prepared in accordance with Secretary of State directions made under the Housing and Regeneration Act 2008; and

■n the information given in the Performance Report and the Accountability Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which I report by exception

I have nothing to report in respect of the following matters which I report to you if, in my opinion:

■n adequate accounting records have not been kept or returns adequate for my audit have not been received from branches not visited by my staff; or

■n the financial statements and the parts of the Remuneration and staff report and the Parliamentary accountability disclosures to be audited are not in agreement with the accounting records and returns; or

■n I have not received all of the information and explanations I require for my audit; or

■n the Governance Statement does not reflect compliance with HM Treasury’s guidance.

Report

I have no observations to make on these financial statements.

Sir Amyas C E Morse Comptroller and Auditor General National Audit Office, 157-197 Buckingham Palace Road, Victoria, London, SW1W 9SP

28 June 2017



GROUP STATEMENT OF COMPREHENSIVE NET EXPENDITUREYEAR ENDED31 MARCH 2017

2016/17 2015/16Note £’000 £’000

ExpenditureGrant payments 2 372,505 298,603 Capital grant in kind 18 64,013 - Cost of property disposals 3 120,337 83,723 Programme costs 4 21,365 12,334 Estate management costs 12,593 15,017 Staff costs, excluding pensions 6 45,250 47,015 Pension costs 6 11,315 12,500 Other administration costs 7 14,706 16,261 Restructuring costs 8 6,026 3,626 Depreciation and amortisation 2,321 2,154 Impairments 9 100,387 56,253 Increase in provisions 10 6,081 14,085

776,899 561,571

IncomeProceeds from disposal of property assets 3 220,507 159,788 Clawback of grants and contributions 12 6,704 29,580 Other operating income 13 29,552 28,213 Gain on disposal of available for sale financial assets 5 64,445 38,368 Capital grants in kind 18 39,040 3,795

360,248 259,744

Net operating expenditure 11 416,651 301,827

Interest receivable 15 (31,357) (29,409)Pension fund finance costs 29(d) (2,247) (1,708)Share of profits of associates and joint ventures 16 (10,055) (396)Net expenditure before tax 372,992 270,314 Income tax credit 19(a) (8,873) (31,985)Net expenditure for the year 364,119 238,329

Other comprehensive expenditureActuarial (gain)/loss from pension fund 29(e) 12,008 (10,813)Fair value gain on available for sale assets* 21 (148,199) (224,381)Realised gains on disposal of available for sale assetsrecognised in net expenditure 5 68,012 38,665 Income tax on items in other comprehensive expenditure* 19(b) 8,873 31,985

(59,306) (164,544)Total comprehensive expenditure for the year 304,813 73,785

All activities above derive from continuing operations. Net expenditure is financed by Grant in Aid as explained in accounting policy Note 1(g), with the exception of non-cash expenditure, for example depreciation, amortisation, provisions and impairments.* Net fair value movements on available for sale assets will be reclassified into net expenditure when the related available for sale assets are ultimately disposed. Income tax includes

a £11.0m charge in relation to fair value movements in 2016/17 (2015/16: £29.8m). No other items of Other Comprehensive Expenditure shown above will be reclassified into net expenditure.



GROUP STATEMENT OF FINANCIAL POSITIONAT31 MARCH 2017

2017 2016Note £’000 £’000

Non-current assetsIntangible assets 3,470 2,190 Property, plant and equipment 3,558 3,615 Investments in associates and joint ventures 20(b) 16,165 7,528 Available for sale financial assets 21 6,417,932 4,440,010 Pension assets 29(a) 47,231 63,693 Loans 22 643,103 507,747 Trade and other receivables 24 151,275 153,263

7,282,734 5,178,046

Current assetsProperty/development assets 23 589,536 544,915 Loans 22 189,810 118,674 Trade and other receivables 24 149,090 113,435 Cash and cash equivalents 25 185,058 135,240

1,113,494 912,264 Total assets 8,396,228 6,090,310

Current liabilitiesTrade and other payables 26 (266,193) (203,968)Provisions 27 (17,592) (20,698)

(283,785) (224,666)Non-current assets plus net current assets 8,112,443 5,865,644

Non-current liabilitiesTrade and other payables 26 (14,340) (2,273)Provisions 27 (13,709) (12,718)Pension liabilities 29(a) (4,041) (8,440)

(32,090) (23,431)Assets less liabilities 8,080,353 5,842,213

ReservesIncome and expenditure reserve 7,777,475 5,608,491 Fair value reserve 300,912 231,759 Regulation reserve 1,966 1,963 Taxpayers’ equity 8,080,353 5,842,213

The accompanying Notes are an integral part of these Financial Statements.Approved by the Board on 22 June 2017 and signed on their behalf by:




AGENCY STATEMENT OF FINANCIAL POSITIONAT31 MARCH 2017

2017 2016Note £’000 £’000

Non-current assetsIntangible assets 3,470 2,190 Property, plant and equipment 3,558 3,615 Investments in subsidiaries 20(a) 25,000 20,542 Investments in associates and joint ventures 20(b) - 1,934 Available for sale financial assets 21 6,417,932 4,440,010 Pension assets 29(a) 47,231 63,693 Loans 22 643,103 507,747 Trade and other receivables 24 151,275 153,263

7,291,569 5,192,994

Current assetsProperty/development assets 23 589,536 544,915 Loans 22 189,810 118,674 Trade and other receivables 24 149,090 113,435 Cash and cash equivalents 25 185,058 135,240

1,113,494 912,264 Total assets 8,405,063 6,105,258

Current liabilitiesTrade and other payables 26 (276,193) (213,968)Provisions 27 (17,592) (20,698)

(293,785) (234,666)Non-current assets plus net current assets 8,111,278 5,870,592

Non-current liabilitiesTrade and other payables 26 (14,340) (2,273)Provisions 27 (13,709) (12,718)Pension liabilities 29(a) (4,041) (8,440)

(32,090) (23,431)Assets less liabilities 8,079,188 5,847,161

ReservesIncome and expenditure reserve 7,776,310 5,613,439 Fair value reserve 300,912 231,759 Regulation reserve 1,966 1,963 Taxpayers’ equity 8,079,188 5,847,161

The accompanying Notes are an integral part of these Financial Statements.Approved by the Board on 22 June 2017 and signed on their behalf by:




STATEMENT OF CASH FLOWSYEAR ENDED31 MARCH 2017

Group and Agency 2016/17 2015/16Note £’000 £’000

Net cash outflow from operating activities (a) (362,317) (535,622)

Cash flows from investing activitiesLoans advanced by Agency 22 (364,632) (196,200)Loans repaid to Agency 22 177,221 225,805 Purchase of property, plant and equipment (126) (550)Purchase of intangible assets (3,084) (1,466)Additions to available for sale financial assets 21 (2,332,723) (1,651,461)Proceeds from disposal of available for sale financial assets* 5 386,992 223,464 Investment in joint venture 20(b) (905) (3,323)Redemption of investment in associate 20(b) - 10,000 Interest received 6,439 7,649 Net cash outflow from investing activities (2,130,818) (1,386,082)

Cash flows from financing activitiesGrant in Aid from sponsor department 2,542,953 1,824,060 Net cash inflow from financing activities 2,542,953 1,824,060

(Decrease)/increase in cash and cash equivalents in the period 49,818 (97,644)

Cash and cash equivalents at 1 April 25 135,240 232,884 Cash and cash equivalents at 31 March 25 185,058 135,240*Proceeds from disposal of available for sale financial assets shown in note 5 include £64.0m in relation to the transfer of part of the JESSICA fund within government which did not result

in a cash receipt (see note 18)

(a) Reconciliation of net operating expenditure to net cash flow from operating activities

2016/17 2015/16Note £’000 £’000

Net operating expenditure (416,651) (301,827)Additions to property/development assets 23 (213,056) (132,130)Cost of property/development assets disposed 3, 23 118,527 82,442 Capital grant in kind included in operating expenditure 18 64,013 - Increase in impairments 9 100,387 56,253 Depreciation and amortisation 2,321 2,154 Gain on disposal of available for sale financial assets 5 (64,445) (38,368)Pension costs 2,302 2,972

(406,602) (328,504)

Increase in receivables (26,904) (822)(Decrease)/increase in payables 74,292 (206,846)Increase/(decrease) in provisions (3,103) 550 Net cash outflow from operating activities (362,317) (535,622)



GROUP STATEMENT OF FINANCIAL POSITIONAT31 MARCH 2017

GROUP STATEMENT OF CHANGES IN TAXPAYERS’ EQUITYYEAR ENDED31 MARCH 2017

Income andexpenditure

reserveFair value

reserveRegulation

reserve TotalNote £’000 £’000 £’000 £’000

Balance at 31 March 2015 4,014,115 75,865 1,958 4,091,938

Changes in taxpayers’ equity 2015/16Net expenditure for the year (238,334) - 5 (238,329)Actuarial gain from pension fund 29(e) 10,813 - 10,813 Fair value gain on available for sale assets 21 - 224,381 - 224,381 Realised gains on disposal of available for sale assets recognised in net expenditure 5 - (38,665) - (38,665)Income tax on items in other comprehensive expenditure 19(b) (2,163) (29,822) - (31,985)Total comprehensive expenditure for the year (229,684) 155,894 5 (73,785)Grant in Aid from sponsor department 1(g) 1,824,060 - - 1,824,060 Balance at 31 March 2016 5,608,491 231,759 1,963 5,842,213

Changes in taxpayers’ equity 2016/17Net expenditure for the year (364,122) - 3 (364,119)Actuarial loss from pension fund 29(e) (12,008) - (12,008)Fair value gain on available for sale assets 21 - 148,199 - 148,199 Realised gains on disposal of available for sale assets recognised in net expenditure 5 - (68,012) - (68,012)Income tax on items in other comprehensive expenditure 19(b) 2,161 (11,034) (8,873)Total comprehensive expenditure for the year (373,969) 69,153 3 (304,813)Grant in Aid from sponsor department 1(g) 2,542,953 - - 2,542,953 Balance at 31 March 2017 7,777,475 300,912 1,966 8,080,353



AGENCY STATEMENT OF CHANGES IN TAXPAYERS’ EQUITYYEAR ENDED31 MARCH 2017

Income andexpenditure

reserveFair value

reserveRegulation

reserve TotalNote £’000 £’000 £’000 £’000

Balance at 31 March 2015 4,015,288 75,865 1,958 4,093,111

Changes in taxpayers’ equity 2015/16Net expenditure for the year (234,559) - 5 (234,554)Actuarial gain from pension fund 29(e) 10,813 - - 10,813 Fair value gain on available for sale assets 21 - 224,381 - 224,381 Realised gains on disposal of available for sale assets recognised in net expenditure 5 - (38,665) - (38,665)Income tax on items in other comprehensive expenditure 19(b) (2,163) (29,822) - (31,985)Total comprehensive expenditure for the year (225,909) 155,894 5 (70,010)Grant in Aid from sponsor department 1(g) 1,824,060 - - 1,824,060 Balance at 31 March 2016 5,613,439 231,759 1,963 5,847,161

Changes in taxpayers’ equity 2016/17Net expenditure for the year (370,235) - 3 (370,232)Actuarial loss from pension fund 29(e) (12,008) - - (12,008)Fair value gain on available for sale assets 21 - 148,199 - 148,199 Realised gains on disposal of available for sale assets recognised in net expenditure 5 - (68,012) - (68,012)Income tax on items in other comprehensive expenditure 19(b) 2,161 (11,034) - (8,873)Total comprehensive expenditure for the year (380,082) 69,153 3 (310,926)Grant in Aid from sponsor department 1(g) 2,542,953 - - 2,542,953 Balance at 31 March 2017 7,776,310 300,912 1,966 8,079,188



NOTES TO THE FINANCIAL STATEMENTSYEAR ENDED31 MARCH 2017

1 Statement of accounting policies

a) Statutory basis The Financial Statements of the Homes and Communities Agency (the Agency) are governed under the provisions of the Housing and Regeneration Act 2008 and by the Accounts Direction given by the Secretary of State, with approval of HM Treasury under the Act. The Direction issued on 8 December 2014 reflects government policy that the Financial Statements should, insofar as appropriate, conform to the accounting and disclosure requirements contained in Managing Public Money, Financial Reporting Manual (FReM) and in HM Treasury’s Fees and Charges Guide. The Financial Statements have been prepared in accordance with the 2016/17 Government Financial Reporting Manual (FReM) issued by HM Treasury.

The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy which is judged to be most appropriate to the particular circumstances of the Agency for the purpose of giving a true and fair view has been selected. The particular policies adopted by the Agency are described below. They have been applied consistently in dealing with items that are considered material to the accounts.

b) Accounting conventionThe Financial Statements are prepared under the historical cost convention modified by the revaluation of property, plant and equipment and available for sale financial assets.

c) Basis of preparation and consolidationThe Group Financial Statements incorporate those of the Agency and the investees controlled by the Agency. No Statement of Comprehensive Net Expenditure is presented for the Agency as permitted by section 408 of the Companies Act 2006.

No significant judgements or assumptions have been made relating to the determination of investee status, joint control or significant influence.

The Group’s associated undertakings are all undertakings in which the Group has a participating interest and over whose operating and financial policy it exercises significant influence. The Group's joint ventures are all undertakings in which the Group exercises joint control. In the Group Financial Statements, investments in associates and joint ventures are accounted for using the equity method. The consolidated Statement of Comprehensive Net Expenditure includes the Group’s share of profits and losses of associates and joint ventures, while its share of net assets of associates and joint ventures is shown in the Group Statement of Financial Position.

The share of net assets and profit information is based on unaudited financial statements or management information to 31 March 2017 for most associates. Where this information is not available, financial statements with a different reporting date have been used, where this reporting date is within three months of that of the Agency and where this does not produce significantly different results. Adjustments have been made on consolidation for significant transactions following the reporting date of the information used.

Countryside Maritime Limited prepares its annual financial statements up to 30 September which is the reporting date of the joint venture partner. English Cities Fund Limited Partnership prepares its annual financial statements up to 31 December, the same reporting date as its investee partner.



d) Intangible assetsIntangible assets comprise:

■■ Software – licenses to use software developed by third parties

■■ Information technology – the costs of developing the core systems of the Agency.

Assets are capitalised where the cost of a single asset, or group of assets, exceeds £5,000. Intangible assets are valued at amortised historical cost and are amortised over four years.

e) Property, plant and equipmentProperty, plant and equipment, excluding property, is stated at historical cost less accumulated depreciation and any impairment in value, as a proxy for fair value. Land and buildings are recognised initially at cost and thereafter measured at fair value, less depreciation on buildings. Land is not depreciated.

Assets are capitalised where the cost of a single asset, or group of assets, exceeds £5,000. Depreciation is charged to net expenditure based on cost or fair value (in the case of revalued assets), less the estimated residual value of each asset, evenly over its expected useful life as follows:

Freehold and long leasehold property 50 years, or the remaining lease term if shorterInformation technology three yearsFurniture, fixtures and fittings five yearsOffice equipment five years

f) Property/development assets

i) ValuationProperty/development assets, consisting of land and buildings, are shown in the Statement of Financial Position at the lower of cost and net realisable value. Net realisable value is determined by deducting expected disposal costs from the valuation of each asset. The valuation methodology reflects the Agency's objectives and conditions for each asset. A valuation of the whole portfolio is carried out as at each reporting date by both internal and external qualified valuers, with independent external valuers appointed for the majority of the portfolio’s value and also to value complex properties. In all cases valuations are in accordance with the current edition of RICS Valuation – Professional Standards published by the Royal Institution of Chartered Surveyors.

Each asset is individually assessed in order to calculate the net gain or loss on each site following the revaluation. Any losses are shown in the Statement of Comprehensive Net Expenditure as an impairment charge. A reversal of an impairment charge may occur if the net realisable value of an asset increases up to a maximum of its historical cost.

ii) Disposal of property/development assetsThe Agency recognises income from the disposal of property/development assets (net of VAT), when there is a legally binding sale agreement, which has become unconditional and irrevocable by the end of the reporting period, subject to any provisions necessary to cover residual commitments relating to the property.

Where proceeds are receivable over a period of more than 12 months after the end of the reporting period, the proceeds are discounted at a rate prescribed by HM Treasury to reflect the net present value of the receipts. The difference between actual cash receipts and the net present value of the receipts is credited to interest receivable over the life of the debt.



1. Statement of accounting policies (continued)

g) FundingThe Agency’s activities are funded in part by income generated from operations. However the majority of the Agency’s funding is by Grant in Aid provided by the Department for Communities and Local Government for specified types of expenditure.

Grant in Aid received to finance activities and expenditure which support the statutory and other objectives of the Agency is treated as financing and credited to the income and expenditure reserve in full, because it is regarded as a contribution from a controlling party. The net expenditure for the period is transferred to this reserve.

Under paragraph 15 of schedule 1 to the Housing Act 1996, any property that remains in ownership of a Registered Provider (RP), after meeting the claims of creditors and any other liabilities following its dissolution or winding up, is transferable to the Agency. Use of such funds held under this paragraph is restricted to either managing the controlled dissolution and transfer of engagements of an individual RP in financial difficulty, or ensuring its continued existence, provided that adequate financial controls have been put in place. Amounts received or utilised in this way are credited or charged directly to the Regulation reserve.

h) Grants payablePayments of capital and revenue grants to RPs and other bodies are accounted for on an accruals basis.

Payments of Affordable Housing Grant are paid in two instalments, a Start on Site tranche and a completion tranche. However, grants to unregistered providers are generally paid in one tranche on completion. Start on Site tranches for RPs in the two years disclosed were as follows:

National Affordable Housing Programme: 50% throughout 2015/16 and 2016/17Affordable Homes Programme: 75% from 1 October 2015 to 31 March 2016 50% at all other times

i) Grant recoveries from RPsRecoveries of grants are accounted for when the amount due for repayment has been agreed with the RP and invoiced. RPs are able to retain any grant recoverable from sales within their own accounts for recycling, with the funds becoming due back to the Agency if unused within three years.

j) Other incomeContributions from partners towards specific revenue or capital expenditure are initially recognised in income but are deferred if the funder imposes a condition that the future economic benefits embodied in the grant are consumed as specified by the grantor. Deferred contributions are subsequently recognised in income when the conditions are met.

Rent and other property income is accounted for over the period to which it relates, except for income from leases, which is accounted for as described in m) below. Other operating income is recognised when the Agency has a contractual right to receive it.

K) Investments in subsidiaries, associates and joint venturesInvestments in subsidiaries, associates and joint ventures, as recorded in the Agency’s own Statement of Financial Position, are accounted for at cost less impairment.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)YEAR ENDED31 MARCH 2017



l) Income taxThe income tax charge represents the sum of current tax and deferred tax. Both current and deferred tax are recognised in the Statement of Comprehensive Net Expenditure except to the extent that they relate to items recognised directly in taxpayers' equity, in which case they are recognised in taxpayers' equity.

Current tax is the expected tax payable on the taxable surplus for the year, based on tax rates that have been enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated at the tax rates expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.

A deferred tax asset is recognised only to the extent that it is probable that future taxable surpluses will be available against which the temporary differences can be utilised.

m) LeasesesLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases.

Operating lease rentals receivable and payable are accounted for in the Statement of Comprehensive Net Expenditure on a straight line basis over the term of the lease.

n) Pension costsThe Agency accounts for pension costs in accordance with IAS 19 Employee Benefits. During the year the Agency's employees were able to participate in one of the following contributory pension schemes:




All three schemes are multi-employer defined benefit schemes as described in paragraph 7 of IAS 19.

Plan assets are measured at fair value, and liabilities are measured on an actuarial basis and discounted to present value. The net asset or obligation is recognised within pension assets or liabilities, respectively, in the Statement of Financial Position. The operating and financing costs of the schemes are recognised separately in the Statement of Comprehensive Net Expenditure. Service costs are spread over the working lives of employees and financing costs are recognised in the period in which they arise. Actuarial gains and losses are recognised in full in taxpayers' equity.

o) Provisions in respect of environmental liabilitiesProvisions are made for environmental liabilities where the Agency is under a statutory, contractual or constructive obligation to remediate land to relevant standards. The amounts provided are the best estimate of the expenditure required to settle the obligation, based on circumstances existing at the reporting date.





p) Financial instruments Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Agency becomes a party to the contractual provisions of the instrument.

The Agency derecognises a financial asset only when the contractual rights to the cash flows for the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.

The Agency derecognises a financial liability only when the Agency’s obligations are discharged, cancelled or they expire.

Financial assetsThe Agency's financial assets fall into either the ‘available for sale’ or ‘loans and receivables’ classifications under IAS 39 Financial Instruments: Recognition and Measurement. The classification depends upon the nature and purpose of the financial assets and is determined at the time of initial recognition.

Loans and receivablesThese are non-derivative financial assets with fixed or determinable payments that are not traded in an active market. Loans and receivables held by the Agency comprise loans, trade and other receivables and cash and cash equivalents. These are included within current assets or non-current assets depending on their expected maturity.

LoansLoans are initially recognised when cash is advanced to the borrower and are measured at fair value inclusive of transaction costs. They are subsequently carried at amortised cost using the effective interest rate.

Trade and other receivablesTrade and other receivables are measured at amortised cost less impairments. The net of these balances are classified as ‘trade and other receivables’ in the Statement of Financial Position.

Cash and cash equivalentsCash comprises cash on hand and demand deposits. Cash equivalents comprise amounts in bank accounts where there is an insignificant risk of changes in value, with less than three months’ notice from inception. Cash and cash equivalents are classified as ‘loans and receivables’.

Available for sale financial assetsThese are non-derivative financial assets not held for trading and either designated as such or for which payments are neither fixed nor determinable.



The Agency provides financial assistance to home buyers to buy a share in a new build home. The buyer must take out a mortgage which, along with any deposit, must make up a minimum of 80% of the full purchase price of the property (60% for properties in London from April 2016). In return the Agency will assist with up to 20% of the full property price (40% for properties in London from April 2016). In similar schemes historically, the Agency assisted with up to 50% of the purchase price. The Agency's assistance is paid to the participating housebuilder, not the buyer. However, as part of the sales agreement, the Agency has an entitlement to a share of the future sales proceeds which will be equal to the initial percentage contribution. This is secured by a second charge on the property. The Agency’s entitlement to the future sale proceeds on these properties is classified as being 'available for sale' under IAS 39.

The Agency also makes investments in development and infrastructure projects under which the Agency benefits from variable returns based on a share of profitability, including projects with both the private sector and local authorities. These investments are also classified as available for sale and are stated at fair value.

Available for sale assets are initially recognised when the Agency becomes a party to the contractual provisions of the instrument and are measured at fair value inclusive of transaction costs. They are subsequently carried at fair value. More information about the measurement techniques used to determine fair value is provided in Note 31.

Gains and losses arising from changes in fair value are recognised directly in the fair value reserve with the exception of impairment losses which are recognised directly in the Statement of Comprehensive Net Expenditure. Where the financial asset is disposed of, the cumulative gain previously recognised in taxpayers' equity is included in net expenditure for that period.

Differences between the fair value at initial recognition as calculated using the Agency's valuation methods (described in Note 31) and the price paid by the Agency to acquire the instrument are released over the expected life of the instrument in accordance with IAS 39. Differences arising from the application of discounting are released using the effective interest rate method. Differences arising from cashflow forecasts on an undiscounted basis are released on a straight line basis over the expected life of the instrument, subject to this amount still being forecast at the reporting date.

Impairment of financial assetsIFRS require entities to carry out impairment testing on assets which show indications of impairment. In carrying out this assessment, management exercise judgement in considering future cashflows as well as other information to determine the fair value of an asset.

‘Loans and receivables’ are assessed for indications of impairment at the end of each reporting period and are impaired where there is objective evidence that the recovery of the amount is in doubt. Objective evidence of impairment could include significant financial difficulty of the customer, default on payment terms or the customer going into liquidation.

For financial assets classified as available for sale, a significant or prolonged decline in the value of the property underpinning the financial asset, or a significant reduction in expected cashflows, is considered to be objective evidence of impairment.





Financial liabilitiesAll non-derivative financial liabilities are initially measured at fair value and subsequently measured at amortised cost.

Financial liabilities consist of trade and other payables and certain provisions.

Financial liabilities are classified as current liabilities unless the Agency has an unconditional right to defer settlement for at least 12 months after the end of the reporting period.

q) Critical accounting judgements and key sources of estimation uncertaintyIn the process of applying the accounting policies above, management has made the following judgements which have a significant impact on the Financial Statements:

Available for sale financial assetsThe majority of Available for sale financial assets are investments in housing units, such as those under the Help to Buy scheme, as analysed in Note 21. These assets are valued with reference to regional house price indices, supplemented by adjustments for the Agency's experience of actual disposals since the inception of the schemes. However these only provide an estimate of the fair value of these assets because house price indices cannot accurately predict the value of individual units; and disposal proceeds to date, although a good indicator of market performance, may not occur at the same level in the future.

The valuation of investments in housing units is highly sensitive to changes in assumptions about market prices. Investments in housing units are also the Agency's most significant asset category so the judgement exercised by management, both in the application of indexation to the home equity portfolio and in the experience adjustments applied to this indexation, is a key source of estimation uncertainty in the Agency's financial statements. Analysis showing the sensitivity of the valuation of these assets to changes in market prices, and therefore to management's judgement in estimating this valuation, is shown in Note 32.

Other available for sale assets are generally valued with reference to cashflow forecasts, which are by their nature based on estimates.

Market value of property/development assetsThe determination of the market value of property/development assets involves a significant amount of judgement and estimation uncertainty, particularly given the complexity of some of the Agency’s properties and the range of anticipated routes to disposal. Valuations are performed by qualified valuers with independent external valuers appointed for the majority of the portfolio’s value and also to value complex properties. However, the judgement and estimation uncertainty involved in property valuations only affects carrying value when the valuation is below an asset's cost.

Defined benefit pensionsThe value of the Agency’s defined benefit pension assets and liabilities have been assessed by qualified independent actuaries. In making these assessments, it is necessary for actuarial assumptions to be used which include future rates of inflation, salary growth, discount rates and mortality rates. Differences between those estimates used and the actual outcomes will be reflected in taxpayers' equity in future years.



r) Impact of standards and interpretations in issue but not yet effectiveAt the date of approval of these Financial Statements there are a number of standards, amendments and interpretations that have been published but which are not yet effective. Those which could have a significant impact on the Agency are listed below.

IFRS 9 Financial InstrumentsIFRS 9 will be effective for the Agency's 2018/19 reporting period. The standard simplifies the classification and measurement of financial assets and changes the measurement and recognition basis for impairments. The standard is expected to result in the Agency's available for sale assets continuing to be accounted for at fair value, but with changes in fair value being recorded in net expenditure. This will result in the elimination of the fair value reserve and increased volatility in net expenditure. In addition, IFRS 9 directs that impairments are measured using a forward-looking 'expected loss' impairment model, which will replace the 'incurred loss' impairment model currently used, which only considers loss events which have already occurred. This will result in impairment losses being recognised earlier than they are currently.

IFRS 16 LeasesIFRS 16 will be effective for the Agency's 2019/20 reporting period. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The Agency expects to reclassify many of its leases, particularly for property, as finance leases as a result. Principally, this will reduce administrative accommodation costs and increase depreciation charges, as well as increasing gross assets and liabilities.




2. Grant payments

Grant payments were made to RPs, local authorities and other public and private sector partners under the following programmes:

2016/17 2015/16£’000 £’000

Affordable Housing Grant 317,469 284,529 Land programme 12,340 15,399 City Deals 22,087 2,372 Local Authority Capacity Fund 16,509 - Garden Villages 4,100 - Traveller Pitch Funding* - 1,760 Homelessness Change Programme* - 1,243 Housing Zones* - 5,584 Reclassifications to assets** - (12,284)

372,505 298,603

Affordable Housing Grant comprises capital investment grants for affordable housing made to RPs and other bodies.

*Th ese programmes ceased in 2015/16.

**Re classifications to assets relate to a change in treatment of specific investments which were previously expensed. These are more correctly treated as assets, where the Agency has a contractual right to income.

3. Disposal of property assets

2016/17 2015/16Note £’000 £’000

Proceeds from disposals 220,507 159,788 Cost of property disposals:Book value of property disposals 23 118,527 82,442 Direct sales expenses 1,810 1,281

120,337 83,723 Gain on disposal 100,170 76,065



4. Programme costs

2016/17 2015/16£’000 £’000

Land programme 10,515 7,512 Affordable Homes Programme Agents Fees 2,879 1,835 Financial Investment Programmes 2,966 2,987 ERDF grant repaid 5,005 -

21,365 12,334

Costs within the Land programme include non-asset and related project specific costs.

Costs within other programmes include legal and due diligence fees, financial investigation fees, property services fees and other non-grant, non-equity fees in relation to the operation of these initiatives.

5. Gain on disposal of available for sale financial assets

Help to Buy

Other legacy home equity

schemes Other

assets Total2016/17 Note £’000 £’000 £’000 £’000Proceeds from disposals 262,438 81,984 106,583 451,005 Fair value of assets disposed 21 264,614 83,375 106,583 454,572 Loss on disposal against fair value (2,176) (1,391) - (3,567)Fair value gains recognised in net expenditure on disposal 33,054 13,854 21,104 68,012 Gain on disposal against historic cost 30,878 12,463 21,104 64,445

Help to Buy

Other legacy home equity

schemes Other

assets Total2015/16 Note £’000 £’000 £’000 £’000Proceeds from disposals 101,663 82,600 39,201 223,464 Fair value of assets disposed 21 101,899 83,328 38,534 223,761 Loss on disposal against fair value (236) (728) 667 (297)Fair value gains recognised in net expenditure on disposal 9,944 11,564 17,157 38,665 Gain on disposal against historic cost 9,708 10,836 17,824 38,368

Fair value gains on available for sale assets are recognised in the fair value reserve, rather than in net expenditure, reflecting that they are unrealised. On disposal of the related assets, these gains become realised and so are then recognised in net expenditure.




6. Staff costs

The costs of salaried staff for the year, excluding Board Members, were as follows:

(a) Total staff costs

2016/17 2015/16£’000 £’000

Total staff costs charged to net expenditure comprise:Staff costs, excluding pensions 45,250 47,015 Pension costs 11,315 12,500 Total staff costs 56,565 59,515

The costs above can be further analysed as follows: 2016/17 2015/16 £’000 £’000Salaries and wages 39,581 41,894 Social security costs 4,629 3,959 Pension costs – current service cost* 9,244 11,492 Pension costs – past service cost and losses on curtailments and settlements 1,137 560 Pension costs – expenses 934 448

55,525 58,353

Temporary staff 393 239 Seconded staff 647 923

56,565 59,515 Non-Executive Board Member expenses 12 15

Staff secondments are generally posts where specialist skills are required from government departments or from the property or banking sectors, and are generally for a duration of no more than two years.

There were no staff costs capitalised in 2016/17 (2015/16: £nil).

* The current service pension cost does not include costs relating to early retirements, which are included within restructuring costs in Note 8.

(b) Staff bonusesStaff members who are direct employees of the Agency benefit from a Performance Related Pay scheme whereby any bonuses are determined with reference to performance against agreed objectives during the year. Payments accruing during the year totalled £200,000 (2015/16: £222,000).

For the performance years ended 31 March 2016 and 2017 the Directors all agreed not to receive a bonus.

The Accountability section of the Annual Report includes further details of bonuses, the average number of staff employed by the Agency, staff numbers by pay band and exit packages.



7. Other administration costs

2016/17 2015/16Note £’000 £’000

Board Members’ remuneration (including employers’ national insurance) 272 264 Travel and subsistence 3,064 3,227 Accommodation and office running costs 7,950 8,347 Professional fees 851 1,411 Auditor’s remuneration 11 210 215 Taxation not recoverable 1,455 1,520 Other 904 1,277

14,706 16,261

Included within administration costs is £2,000 (2015/16: £4,000) in relation to non-staff hospitality and entertaining.

8. Restructuring costs

2016/17 2015/16£’000 £’000

Redundancy and restructuring 5,126 3,196 Early retirement pension costs 900 430

6,026 3,626

The restructuring costs shown above include adjustments to accruals made in previous years, and are therefore different to the exit package costs shown in the Accountability section of the Annual Report, which relate only to new departures agreed in the year.

9. Impairments

2016/17 2015/16Note £’000 £’000

Impairments/(impairment reversals) arise on assets as follows:Property/development assets 23 49,908 19,596 Available for sale financial assets 21 50,751 30,221 Loans 22 62 6,476 Property, plant and equipment (334) (40)

100,387 56,253




10. Movement in provisions

2016/17 2015/16Note £’000 £’000

Movement in bad debt provision 11 (99) 970 Movement in other provisions 27 6,180 13,115

6,081 14,085

11. Net operating expenditure

2016/17 2015/16Note £’000 £’000

Net operating expenditure has been arrived at after charging the following:Auditor’s remuneration 210 215 Operating lease rentals – land and buildings 4,418 4,363 Operating lease rentals – other 1,078 1,164 Redundancy and restructuring 8 5,126 3,196 Early retirement pension costs 8 900 430 Movement in bad debt provision 10 (99) 970

Auditor’s remuneration comprises fees only in relation to statutory audit.

12. Clawback of grants and contributions

2016/17 2015/16£’000 £’000

Affordable Housing Grant 3,625 23,063 Kickstart Housing Delivery – clawback of gap funding to developers 1,461 1,681 Land programme 1,618 4,087 City Deal grants - 749

6,704 29,580



13. Other operating income

2016/17 2015/16£’000 £’000

Rent and other property income 8,880 10,231 Homeowner fees 7,691 6,276 European Regional Development Fund (ERDF) grant received 6,388 5,579 Miscellaneous operating income 6,593 6,127

29,552 28,213

The ERDF grant received in 2016/17 relates to capital works on a land asset. Grant received in 2015/16 included £5.0m in relation to further investment in the JESSICA fund, described in Note 21.

14. Operating segments

(a) Operating segment analysis The Agency's operational performance is managed by reference to financial and non-financial targets, within the constraints of programme and operational expenditure limits set by DCLG. These programmes therefore form the basis of the Agency's operating segments as defined by IFRS 8 Operating Segments.

All of the Agency's activities, and therefore its income, expenditure, assets and liabilities, occur within the UK. An analysis of the various types of income which the Agency receives is shown in the Statement of Comprehensive Net Expenditure.

As many of the Agency's programmes do not generate their own revenue, and are financed by Grant in Aid, the financial measure used by the Board to assess the Agency's operating performance and manage its resources is programme and administrative expenditure and receipts against Departmental Expenditure Limits (DEL expenditure). The programme and administrative expenditure and receipts information below is presented on the basis of the information presented to the Board.




14. Operating segments (continued)

2016/17 2015/16Capital Resource Total Capital Resource Total

£m £m £m £m £m £mProgramme expenditure:Help to Buy 2,301.7 - 2,301.7 1,602.5 - 1,602.5

Private market investment:Home Building Fund – Short Term 118.7 1.6 120.3 31.0 0.1 31.1 Home Building Fund – Long Term 177.2 1.1 178.3 80.4 6.8 87.2 Build to Rent 86.9 - 86.9 62.3 0.3 62.6 Legacy schemes 10.8 0.2 11.0 27.9 0.1 28.0 Estate Regeneration - - 0.0 4.1 0.1 4.2

393.6 2.9 396.5 205.7 7.4 213.1

Affordable Housing 315.0 3.0 318.0 265.4 2.0 267.4

Land:Public Sector Land 240.0 40.0 280.0 171.2 22.5 193.7 Starter Homes 82.8 7.3 90.1 22.7 0.4 23.1 City Deals 28.1 - 28.1 17.9 - 17.9

350.9 47.3 398.2 211.8 22.9 234.7 Total programme expenditure 3,361.2 53.2 3,414.4 2,285.4 32.3 2,317.7

Administration:Staff and administration 3.2 74.3 77.5 2.0 76.0 78.0 Depreciation - 2.3 2.3 - 2.2 2.2

3.2 76.6 79.8 2.0 78.2 80.2

Total gross expenditure 3,364.4 129.8 3,494.2 2,287.4 110.5 2,397.9




2016/17 2015/16Capital Resource Total Capital Resource Total

£m £m £m £m £m £mProgramme Receipts:Help to Buy and FirstBuy* - - - (123.6) 0.2 (123.4)

Private market investment:Home Building Fund – Short Term (24.7) (2.8) (27.5) (2.4) (0.3) (2.7)Home Building Fund – Long Term (0.1) (4.5) (4.6) (3.3) (1.0) (4.3)Build to Rent (73.0) (4.2) (77.2) (3.9) (2.6) (6.5)Legacy schemes (74.3) (10.4) (84.7) (198.5) (14.4) (212.9)

(172.1) (21.9) (194.0) (208.1) (18.3) (226.4)

Affordable Housing (32.0) (2.3) (34.3) (38.2) (2.4) (40.6)

Land:Public Sector Land (296.2) (108.2) (404.4) (187.2) (99.2) (286.4)Starter Homes (0.1) - (0.1) - - - City Deals (15.4) (18.7) (34.1) (15.2) (7.1) (22.3)

(311.7) (126.9) (438.6) (202.4) (106.3) (308.7)

Total receipts (515.8) (151.1) (666.9) (572.3) (126.8) (699.1)

Total net DEL expenditure reported to the Board 2,848.6 (21.3) 2,827.3 1,715.1 (16.3) 1,698.8

* From 1 April 2016 Help to Buy and FirstBuy receipts are transferred via DCLG to HM Treasury’s Consolidated Fund so are no longer included within the Agency’s DEL receipts budget.

(b) Reconciliations to net expenditureNet DEL expenditure, the financial measure used to report the Agency's performance to the Board, excludes certain items which are disclosed separately in the Statement of Comprehensive Net Expenditure such as provisions for impairment, movements in other provisions, depreciation and income tax. It also includes items of expenditure which, for statutory reporting purposes, are capitalised in the Statement of Financial Position. Such items include additions to and disposals of non-current assets, loans and development assets. In addition, there are instances where there are timing differences between income and expenditure recognised for statutory reporting purposes and for DEL reporting. Examples include pension costs and a restriction on recognising income on certain disposals until cash is received. For statutory reporting purposes income is recognised when the Agency is contractually entitled to receive the income. These rules are prescribed by HM Treasury.

A reconciliation of total DEL expenditure to net expenditure before tax as shown in the Statement of Comprehensive Net Expenditure is as follows:





2016/17 2015/16Note £m £m

Total net DEL expenditure reported to the Board 2,827.3 1,698.8 Reconciling items:Increase in impairments 9 100.4 56.3 Impairments captured within DEL expenditure (5.5) - Increase in provisions 27 7.2 12.8 Utilisation of provisions (net of reimbursements) (5.8) (3.9)Share of profits of associates and joint ventures 16 (10.1) (0.4)Investment in joint venture 20(b) (0.9) (3.3)Redemption of investment in associate 20(b) - 10.0 Realised gains on disposal of available for sale assets 5 (68.0) (38.7)Pension movements 0.1 1.2 Book value of development asset disposals 3 118.5 82.4 Book value of available for sale assets disposed 5 454.6 223.8 Help to Buy and FirstBuy receipts not included within net DEL expenditure (294.1) -Loan repayments 22 177.2 225.8 Capital items recorded as programme expenditure:

Additions to available for sale financial assets 21 (2,332.7) (1,651.5)Additions to property/development assets 23 (213.1) (132.1)Loans advanced including interest added to loans 22 (383.8) (213.7)Other (3.2) (2.0)

Timing differences 4.9 4.8 Net expenditure before tax as stated in the Statement of Comprehensive Net Expenditure 373.0 270.3




A reconciliation of programme receipts as shown above to income as stated in the Statement of Comprehensive Net Expenditure is as follows:

2016/17 2015/16Note £m £m

Total receipts reported to the Board 666.9 699.1 Reconciling items:Interest receivable 15 (31.4) (29.4)Clawback of grants recorded as income but shown net within expenditure in Board reporting 12 3.6 23.1Other income shown net within expenditure in Board reporting - 0.4Expenditure shown net within income in Board reporting - 1.3Realised gains on disposal of available for sale assets recognised in net expenditure 5 68.0 38.7Timing differences (5.6) (4.9)Utilisation of reimbursement in respect of provisions (3.6) (9.0)Receipts from disposal of capital items recorded as programme income:

Proceeds from disposal of available for sale financial assets 21 (454.6) (223.8)Loan repayments 22 (177.2) (225.8)Redemption of investment in associate 20 - (10.0)

Help to Buy and FirstBuy receipts not included within DEL receipts 294.1 0.0Income as stated in the Statement of Comprehensive Net Expenditure 360.2 259.7

(c) Major customersIncome as shown in the Statement of Comprehensive Net Expenditure includes a total of £38.8m (2015/16: nil) within the Land segment, arising from entities which individually account for more than 10% of the Agency's total income. Income from the largest single entity contributing to income amounted to £38.8m (2015/16: £22.5m) from a private sector developer within the Land segment.

15. Interest receivable

2016/17 2015/16£’000 £’000

Unwinding of discount on financial assets and liabilities 5,181 4,409 Loan interest 25,879 24,633 Miscellaneous interest 297 367

31,357 29,409




16. Share of profits of associates and joint ventures

The aggregated amounts of the Group’s share of results of associates and joint ventures ( JVs) included in the Statement of Comprehensive Net Expenditure is as follows:

2016/17 2015/16£’000 £’000

Share of results of associates 10,579 1,785 Share of results of joint ventures (524) (1,389)Share of profits of associates and joint ventures 10,055 396

The aggregate share of results is the net profit or loss from continuing operations. There was no profit or loss from discontinued operations and no other comprehensive income recognised in the year.

17. Principal/Agent relationships

HCA acting as agentHCA manages three science parks on behalf of the Department for Business, Energy and Industrial Strategy (BEIS) (previously the Department for Business, Innovation and Skills). During the year the Agency incurred expenditure of £2.3m and collected income of £3.3m as a result of its day to day management of the sites. The net income is payable to BEIS.

The Agency also has an agreement with the Department of Health (DoH) in respect of the Care and Support Specialised Housing Fund. Under this programme, DoH is making available £160m to fund specialist housing for older people and adults with disabilities. The programme is delivered and managed by HCA on behalf of DoH. During the year, grants totalling £42.3m were paid out by the Agency and reimbursed by DoH.

In both of these relationships, HCA is acting as an agent on behalf of the principal, BEIS and DoH respectively. It would therefore be inappropriate to show income or expenditure gross in respect of these transactions, and so income received and expenditure incurred are shown net of reimbursements receivable.

18. Capital grants in kind

Income includes £39.0m (2015/16: £3.8m) in relation to the transfer of assets to the Agency from a number of government departments and agencies under statutory transfers. The intention is that the Agency will invest in these sites to improve their value and marketability, before disposing of them in the market.

Expenditure includes £64.0m in relation to the transfer of part of the JESSICA fund (see note 21) to the Greater Manchester Combined Authority during the year. This is intended to allow greater alignment and coordination of the fund’s resources with other government economic development funding, which is generally managed at city region level. Similarly, the remainder of the JESSICA fund transferred to Liverpool City Region Combined Authority at its market value of £37.7m in May 2017.

In all cases, as transfers were made within government without the payment of cash, a capital grant in kind is recorded for their valuation at the time of transfer.



19. Income tax

(a) Tax credit in net expenditure comprises:2016/17 2015/16

Note £’000 £’000Corporation tax on the results for the year at 20% - -Deferred tax relating to the origination and reversal of temporary differences 28 (8,873) (31,985)

(8,873) (31,985)

The Agency is subject to Corporation Tax on all its activities except those related to grant payments.

(b) Tax charge on items in other comprehensive expenditure comprises:2016/17 2015/16

£’000 £’000Deferred tax relating to:Actuarial gain/(loss) from pension fund (2,161) 2,163 Revaluation of available for sale assets 11,034 29,822

8,873 31,985

(c) Reconciliation of tax charge2016/17 2015/16

£’000 £’000

Net expenditure before tax (372,992) (270,314)Income tax on net expenditure at 20% (74,598) (54,063)Effects of:Non-taxable grant income (10,971) (8,071)Expenditure not deductible for tax, including grant payments 84,262 60,651 Depreciation and amortisation 464 431 Capital allowances on property, plant and equipment (220) (200)Losses utilised (9,124) (31,993)Losses carried forward 1,314 1,260 Tax credit for period (Note 19(a)) (8,873) (31,985)




20. Investments

(a) Subsidiary undertakings

Agency2016/17 2015/16

Cost or valuation £’000 £’000At 1 April 20,542 14,982 Impairment reversal 4,458 5,560 At 31 March 25,000 20,542

During the year, the Agency held interests in the following subsidiaries, each of which are registered in England and Wales and are wholly-owned by the Agency:

Name of undertaking Share capital Nature of businessEnglish Partnerships (LP) Ltd £25,000,000 Investment holding companyThe Estuary Management Company Ltd £1 Property management

companyBristol & Bath Science Park Estate Management Co Ltd £200 Property management

companyNorwepp (NWDA subsidiary) Ltd * £500 Investment holding companyAWM (Subsidiary) Ltd * £1 Investment holding companyONE NorthEast General Partner Ltd * £100 Investment holding company

* Except for English Partnerships (LP) Ltd, the Agency’s investment in each subsidiary is fully impaired, and the aggregate capital and reserves are equal to the share capital stated above. English Partnerships (LP) Ltd is not fully impaired as it has aggregate capital and reserves of £25.0m (2016: £20.5m) as shown in the table above, against an initial investment of £25.0m, representing the value of its investment in English Cities Fund (less redemptions) as covered in Notes 20(b) and 20(c).



20. Investments (continued)

(b) Associated undertakings and joint ventures

Group The aggregated movements in the Group's share of net assets of associates and joint ventures ( JVs) are as follows:

Group Group Agency AgencyNote 2016/17 2015/16 2016/17 2015/16

Cost or valuation £’000 £’000 £’000 £’000At 1 April 7,528 13,809 1,934 - Investments in the year 905 3,323 905 3,323 Redemptions - (10,000) - - Impairments - - (516) (1,389)Reclassification to available for sale financial assets (2,323) - (2,323) - Share of profits of associates and joint ventures 16 10,055 396 - - At 31 March 16,165 7,528 - 1,934

During the year the Group invested £0.9m into a joint venture, Housing Growth Partnership Limited (2016: £3.3m) before the investment was restructured, following which the investment ceased to be a joint venture and was reclassified as an available for sale financial asset (see note 21). In 2015/16 the Group received a £10.0m redemption of its investment in English Cities Fund.

Impairments charged to the Agency’s net expenditure is included within the Share of profits of associates and joint ventures in the Group’s net expenditure (see Note 16).

The aggregated amounts of the Group’s share of net assets and liabilities of associates and JVs are as follows:

2017 2016£’000 £’000

Group share of net assets of associates 15,845 5,266 Group share of net assets of joint ventures 320 2,262 Group share of net assets of associates and joint ventures 16,165 7,528




20. Investments (continued)

The Agency has interests in the following associated undertakings and joint ventures, all of which are registered or resident in England and Wales:

Name of undertaking Interest Nature of businessEnglish Cities Fund Limited Partnership 33% Property developmentNorwepp Limited Partnership ^ * 50% Property rental and developmentOnsite North East Limited Partnership ^ * 50% Development of landPxP West Midlands Limited Partnership ^ * 50% Property rental and developmentCountryside Maritime Limited ^ 50% Development of landTemple Quay Management Limited 24% Property management companyBristol and Bath Science Park Estate Management Company Limited **

50% Property management company

Kings Waterfront (Estates) Limited 50% Property management companyPride in Camp Hill 33% Regeneration of Camp Hill area of NuneatonHousing Growth Partnership Limited ^ ** 50% Investment fund

^ Joint venture* Entities in the process of being wound-up** No longer an associated undertaking or joint venture at 31 March 2017

The return on the Group’s investment in English Cities Fund varies according to the level of profits achieved and its share of net assets is influenced proportionately.

(c) Commitments for associated undertakings and joint ventures

Group and AgencyThe Agency has made a £5.0m working capital facility available to Countryside Maritime Limited, of which £1.3m was drawn at 31 March 2017.



21. Available for sale financial assets

Available for sale financial assets are stated at fair value and relate to the following:

■■ The Agency’s entitlement to future income arising from financial assistance provided to homebuyers to enable them to buy housing units, the majority of which arises from the Help to Buy scheme;

■■ Investments in development and infrastructure projects under which the Agency benefits from variable returns based on income generated by the project funded, including projects with both the private sector and local authorities;

■■ Managed funds, including investments in Housing Growth Partnership, operated by Lloyds Banking Group, and the North West England JESSICA fund (Joint European Support for Sustainable Investment in City Areas). The JESSICA fund is operated by the European Investment Bank on the Agency’s behalf and is partly funded by the European Regional Development Fund (ERDF). Part of the fund was transferred to Greater Manchester Combined Authority during the year, as described in note 18.

IFRS 13 Fair Value Measurement requires entities to disclose financial assets carried at fair value in one of three levels in a hierarchy, based on the sources of information used to determine their fair value. Level 1 is reserved for those assets valued using quoted prices in an active market for identical assets, level 2 is for those using observable prices (eg indices), and level 3 for all other assets. The Agency’s assets relating to housing units are categorised as level 2, while all other available for sale financial assets are categorised as level 3. There are no assets categorised as Level 1.

Available for sale financial assets are carried at fair value, using the valuation methods described in Note 31. Impairments of available for sale assets are recognised in net expenditure, shown within impairments (Note 9). All other fair value adjustments, being gains or losses arising from changes in fair value, are recognised directly in the fair value reserve, reflecting that they are unrealised. On disposal of the related assets, these gains become realised and so are then recognised in net expenditure.




21. Available for sale financial assets (continued)

Group and AgencyLevel 2 Level 3 Total

Note £’000 £’000 £’000At 1 April 2015 2,531,173 286,977 2,818,150 Additions 1,602,447 49,014 1,651,461 Disposals 5 (185,227) (38,534) (223,761)Fair value adjustment 175,390 48,991 224,381 (Impairments)/impairment reversals (33,188) 2,967 (30,221)At 31 March 2016 4,090,595 349,415 4,440,010Additions 2,301,707 31,016 2,332,723Reclassifications * - 2,323 2,323 Disposals 5 (347,989) (106,583) (454,572)Fair value adjustment 135,809 12,390 148,199 (Impairments)/impairment reversals (48,222) (2,529) (50,751)At 31 March 2017 6,131,900 286,032 6,417,932

2017 2016£’000 £’000

Level 2 comprises investments under the following programmes: - Help to Buy 5,721,718 3,629,294 - Other legacy home equity schemes 410,182 461,301 6,131,900 4,090,595

2017 2016£’000 £’000

Level 3 comprises investments in the following categories: - Development equity 155,098 146,783 - Managed funds 53,061 106,334 - Infrastructure equity 35,040 38,784 - Overage 14,921 25,147 - Property disposals 3,578 12,839 - City Deals 14,831 12,602 - Other 9,503 6,926

286,032 349,415 Total available for sale financial assets 6,417,932 4,440,010

The valuation of investments in housing units is highly sensitive to changes in assumptions about market prices. Analysis showing the sensitivity of the valuation of these assets to changes in market prices is shown in Note 32.

* The Agency’s investment in Housing Growth Partnership Limited was restructured during the year, with the result that it was reclassified from joint ventures to available for sale financial assets (see note 20(b)).



22. Loans

Group and Agency

Developmentloans

Infra-structure

loans

Other loans

Total £’000 £’000 £’000 £’000At 1 April 2015 330,949 231,965 82,112 645,026Loans advanced 90,754 93,605 11,841 196,200Loans repaid (162,106) (34,205) (29,494) (225,805)Interest added to loans 10,262 5,967 1,247 17,476Impairments (6,476) - - (6,476)At 31 March 2016 263,383 297,332 65,706 626,421

Loans advanced 187,287 173,239 4,106 364,632Loans repaid (138,169) (27,943) (11,109) (177,221)Interest added to loans 8,895 9,553 695 19,143Impairments (62) - - (62)At 31 March 2017 321,334 452,181 59,398 832,913

Amounts at 31 March 2017 are disclosed as follows:Non-Current assets 174,071 413,451 55,581 643,103Current assets 147,263 38,730 3,817 189,810 321,334 452,181 59,398 832,913

Amounts at 31 March 2016 are disclosed as follows:Non-Current assets 180,237 271,637 55,873 507,747Current assets 83,146 25,695 9,833 118,674 263,383 297,332 65,706 626,421

Development LoansLoans have been made to private sector developers in order to bring forward the development of housing under the Agency’s programmes, including the Home Building Fund, Get Britain Building, Builder’s Finance Fund and Build to Rent. These loans are repayable during periods ranging up to 2022.

Infrastructure LoansLoans have been made to private sector developers and local authorities in order to fund infrastructure on stalled sites, or to unlock potential development sites. These loans are repayable during periods ranging up to 2031.

Other loansOther loans include £28.4m of loans made to utility companies (2015/16: £28.8m) in respect of water infrastructure for new town developments (due for redemption by 2053) and £16.8m loans made to Local Authorities (2015/16: £21.4m) which are repayable during periods ranging up to 2034. The Agency also holds £14.1m loans with private sector developers (2015/16: £15.4m). These primarily relate to loans to former associate companies, which were exited from in previous years and are expected to be redeemed by 2023.




23. Property/development assets

Group and Agency2016/17 2015/16

Note £’000 £’000Net book value at 1 April 544,915 514,823 Movement in year:Capital expenditure 213,056 132,130 Disposals 3 (118,527) (82,442)Impairments 9 (49,908) (19,596)Net book value at 31 March 589,536 544,915

Included above are development assets expected to be realised in more than one year of £519.1m (2015/16: £425.2m).

(a) Impairment of development assetsWhere the net realisable value of a property/development asset is lower than costs incurred on that asset, an impairment is made to write the asset down to net realisable value. This impairment is reviewed annually and any adjustment is taken to net expenditure. Impairments charged in the year were £66.2m and the reversal of impairments were £16.3m.

(b) ValuationProperty/development assets are carried at the lower of cost and net realisable value. In order to determine the net realisable value, a market value is established for all assets in the portfolio individually. The total of these valuations as at 31 March 2017 is £910.2m (2016: £872.9m).



24. Trade and other receivables

Group and Agency2017 2016

Note £’000 £’000(a) Amounts falling due after more than one yearDue from disposal of property/development assets 133,506 135,273 Other receivables 17,769 17,990

151,275 153,263

(b) Amounts falling due within one yearDue from disposal of property/development assets 84,301 60,475 Trade receivables 2,809 1,443 VAT - 214 Prepayments 33,774 21,465 Reimbursement in respect of provisions 27b 2,471 5,978 Other receivables 25,735 23,860

149,090 113,435 Total trade and other receivables 300,365 266,698

25. Cash and cash equivalents

Group and Agency2017 2016

£’000 £’000Cash held with Government Banking Service 147,498 103,929 Cash held with commercial banks 37,560 31,311

185,058 135,240

The Agency draws Grant in Aid from DCLG on a monthly basis, being received towards the middle of each month. At 31 March the Agency therefore held cash balances as shown above, to enable it to meet its short term cash requirements until receipt of the next instalment of Grant in Aid.

There were no cash equivalents at either of the reporting dates shown. In addition to the amounts above, at 31 March 2017 the Agency held £822,000 (2016: £709,000) on behalf of third parties.




26. Trade and other payables

Group and AgencyGroup Group Agency Agency2017 2016 2017 2016

£’000 £’000 £’000 £’000(a) Amounts falling due after more than one yearDeferred income 2,355 - 2,355 - Other payables 11,985 2,273 11,985 2,273

14,340 2,273 14,340 2,273

(b) Amounts falling due within one yearGroup Group Agency Agency2017 2016 2017 2016

£’000 £’000 £’000 £’000Trade payables 225,062 167,510 225,062 167,510 Accruals 10,208 8,717 10,208 8,717 Deferred income 8,203 21,442 8,203 21,442 VAT 5,456 - 5,456 - Amounts due to subsidiary undertaking - - 10,000 10,000 Other taxes and social security 1,418 1,387 1,418 1,387 Other payables 15,846 4,912 15,846 4,912

266,193 203,968 276,193 213,968 Total trade and other payables 280,533 206,241 290,533 216,241

Trade payables arise mainly from grants and other amounts in relation to the Agency’s operations which have been claimed or invoiced but not yet paid.

27. Provisions

Group and Agency

CRA transfersEnvironmental

liabilityOther

liabilities Total£’000 £’000 £’000 £’000

Balance at 1 April 2015 2,548 27,949 2,687 33,184 Charge to net expenditure 2,088 7,656 3,732 13,476 Unused provisions credited to net expenditure (263) - (98) (361)Unwinding of Discount - (318) - (318)Expenditure against provisions (733) (11,374) (458) (12,565)Balance at 31 March 2016 3,640 23,913 5,863 33,416 Charge to net expenditure - 2,898 4,010 6,908 Unused provisions credited to net expenditure (456) - (272) (728)Unwinding of Discount - 988 - 988 Expenditure against provisions (3,184) (4,592) (1,507) (9,283)Balance at 31 March 2017 - 23,207 8,094 31,301



27. Provisions (continued)

Amounts above are disclosed as follows:2017 2016

£’000 £’000Current liabilities 17,592 20,698 Non-current liabilities 13,709 12,718

31,301 33,416

(a) Community related asset (CRA) transfersThe Agency’s policy is to transfer community related assets to local authorities and other appropriate organisations. To the extent that the activities of the Agency have raised a reasonable expectation with third parties that these transactions will proceed, a provision has been made in the Financial Statements.

These liabilities will be discharged by forming balancing packages of industrial and commercial assets and by cash endowment. Any asset transferred as part of a balancing package will not as a consequence realise disposal receipts.

Where community related assets are transferred, the provision that has been made is utilised in the cost of property disposals to offset the cost of the assets transferred.

(b) Environmental liabilityThe environmental liability covers two key liabilities. The first represents the value of remediation work required, as a minimum, to return the Avenue Coking Works site to a saleable and safe condition. The provision represents the amount which the Agency would have to pay a third party to take on the site and associated environmental liabilities, £11.1m at 31 March 2017.

The Agency has a right to partial reimbursement from the Department for Business, Energy & Industrial Strategy (previously the Department of Energy and Climate Change) in respect of this liability, the amounts of which are shown within receivables (Note 24).

The second environmental provision covers the Agency’s liability for water supply contamination at a site in the West Midlands. The cost of the minimum works required is £12.1m.

(c) Other liabilitiesOther liabilities primarily comprise specific provisions for property transactions and legal actions.




28. Deferred tax

Group and AgencyThe movements in deferred tax liabilities for each type of temporary difference are as follows:

At 31 March2015

Charged tonet

expenditure

Charged to othercomprehensive

expenditureAt 31 March

2016£’000 £’000 £’000 £’000

Fair value gains on available for sale assets 20,777 - 29,822 50,599 Unused tax losses (23,281) (31,249) - (54,530)Provisions (6,637) 622 - (6,015)Pensions 9,141 (1,358) 2,163 9,946 Deferred tax liability - (31,985) 31,985 -

At 31 March2016

Charged tonet

expenditure

Charged to othercomprehensive

expenditureAt 31 March

2017£’000 £’000 £’000 £’000

Fair value gains on available for sale assets 50,599 - 11,034 61,633 Unused tax losses (54,530) (9,124) - (63,654)Provisions (6,015) 694 - (5,321)Pensions 9,946 (443) (2,161) 7,342 Deferred tax liability - (8,873) 8,873 -

All deferred tax is stated on a net basis as the Agency has a legally enforceable right to set off the recognised amounts.

In addition to the above, the Agency has tax losses to carry forward of £200m (2016: £265m) for which no deferred tax asset has been recognised because of the uncertainty over future trading profits, which would enable such losses to be utilised.



29. Pension arrangements and liabilities

Group and AgencyDuring the year the Agency’s employees were able to participate in one of the following contributory pension schemes:




All three schemes are multi-employer defined benefit schemes as described in paragraph 7 of IAS 19 Employee Benefits. The Homes and Communities Agency Pension Scheme is a final salary scheme and is the only one which remains open to new employees. The other schemes are Local Government schemes which changed from a final salary to career average basis for benefits accruing from 1 April 2014. Further information on the funding arrangements for the schemes is contained within Note (l) below.

Valuations of the Agency’s assets and liabilities in each scheme as at 31 March 2017 have been prepared in accordance with IAS 19 and the results are disclosed in Note (a) below. Note (b) below shows the weighted average of the key assumptions used by each of the scheme actuaries in preparing the valuations, weighted according to each scheme’s liabilities. Other information below is shown on a consolidated basis for all three schemes.




29. Pension arrangements and liabilities (continued)

(a) Pension assets/(liabilities)HCA pension

scheme Westminster West Sussex Total£’000 £’000 £’000 £’000

2017Fair value of employer assets 398,069 357,602 73,216 828,887 Present value of funded liabilities (387,103) (314,831) (73,287) (775,221)Net funded scheme assets/(liabilities) 10,966 42,771 (71) 53,666 Impact of asset ceiling - (6,506) - (6,506)Adjusted net funded scheme assets/(liabilities) 10,966 36,265 (71) 47,160 Present value of unfunded liabilities - - (3,970) (3,970)Adjusted net scheme assets/(liabilities) 10,966 36,265 (4,041) 43,190 Total of net pension assets 47,231 Total of net pension liabilities (4,041)

2016Fair value of employer assets 333,295 287,421 62,998 683,714 Present value of funded liabilities (293,800) (250,324) (59,347) (603,471)Net funded scheme assets 39,495 37,097 3,651 80,243 Impact of asset ceiling - (15,261) (1,289) (16,550)Adjusted net funded scheme assets 39,495 21,836 2,362 63,693 Present value of unfunded liabilities - - (8,440) (8,440)Adjusted net scheme assets/(liabilities) 39,495 21,836 (6,078) 55,253 Total of net pension assets 63,693 Total of net pension liabilities (8,440)

The impact of the asset ceiling on the recognition of assets is directed by paragraph 64 of IAS 19. The asset ceiling is the limit above which further increases in net pension assets cease to be recognised for accounting purposes. The limit is determined by the benefit which could be obtained by a refund of, or reduction in, employer contributions to a scheme. Movements on the asset ceiling are set out in note 29(h).

Funded schemes with net assets as shown above are disclosed within non-current assets in the Statement of Financial Position.

(b) Actuarial assumptionsThe weighted average of the key assumptions used by the actuaries of the pension schemes are as follows:

i) Financial assumptions

2017 2016Inflation and pension increases rate (CPI) 2.4% 2.2%Salary increases 3.8% 3.8%Discount rate 2.6% 3.6%




ii) Mortality assumptionsBased on actuarial mortality tables, the average future life expectancies at age 65 are summarised below:

2017Years

2016Years

Male – current pensioners 23.7 22.8 Male – future pensioners 25.7 24.9 Female – current pensioners 25.5 25.3 Female – future pensioners 27.7 27.5

(c) Fair value of employer assets

2017 2016£’000 £’000

Equities – quoted 440,429 346,697 Bonds – quoted 257,286 226,836 Property 38,214 34,114 Other assets – quoted 92,856 72,938 Other assets – unquoted 102 3,129 Total 828,887 683,714

Actual return on employer assets 151,833 (5,542)

Some of the funds in which the Agency’s pension assets are invested permit the use of derivatives for the purposes of achieving their investment aims. In all cases, funds are managed by professional investment managers.

(d) Charge to net expenditure

2016/17 2015/16£’000 £’000

Amounts charged to net operating expenditureCurrent service costs 9,943 11,969 Past service costs and losses on curtailments and settlements 1,137 560 Expenses 934 448

12,014 12,977 Amounts charged to finance costsInterest charged on liabilities 21,848 20,951 Expected return on assets (24,660) (22,659)Interest on asset ceiling 565 -

(2,247) (1,708)Total recognised in Statement of Comprehensive Net Expenditure 9,767 11,269

The total expected employer contributions to these schemes in the year ending 31 March 2018 are £9.2m.





(e) Amounts recognised in income and expenditure reserve2016/17 2015/16

£’000 £’000Actuarial (losses)/gains (12,008) 10,813

The cumulative amount of actuarial gains recognised in other comprehensive expenditure since the adoption of IAS 19 is £81.9m.

(f) Reconciliation of fair value of employer assets2016/17 2015/16

£’000 £’000Opening fair value of employer assets 683,714 691,436 Expected return on assets 24,660 22,659 Contributions by members 2,644 2,757 Contributions by the employer 9,548 9,448 Contributions in respect of unfunded benefits 164 557 Actuarial gains/(losses) 127,173 (28,201)Net transfers 708 1,810 Expenses (1,012) (513)Unfunded benefits paid (164) (557)Benefits paid (18,548) (15,682)Closing fair value of employer assets 828,887 683,714

(g) Reconciliation of defined benefit obligation2016/17 2015/16

£’000 £’000Opening defined benefit obligation 611,911 645,732 Current service cost 9,943 11,969 Past service cost and losses on curtailments and settlements 1,137 560 Interest cost 21,848 20,951 Contributions by members 2,644 2,757 Actuarial losses/(gains) – demographic 3,755 (2,000)Actuarial losses/(gains) – financial 152,750 (51,555)Actuarial gains – other (6,715) (2,009)Net transfers 708 1,810 Expenses (78) (65)Unfunded benefits paid (164) (557)Benefits paid (18,548) (15,682)Closing defined benefit obligation 779,191 611,911




(h) Reconciliation of asset ceiling2016/17 2015/16

£’000 £’000Opening asset ceiling 16,550 - Interest cost 565 - Actuarial movements (10,609) 16,550 Closing asset ceiling 6,506 16,550

(i) Five-year history2017 2016 2015 2014 2013

£’000 £’000 £’000 £’000 £’000Present value of defined benefit obligations (779,191) (611,911) (645,732) (540,226) (543,678)Fair value of employer assets 828,887 683,714 691,436 619,489 545,161 Impact of asset ceiling (6,506) (16,550) - - - Surplus in the schemes 43,190 55,253 45,704 79,263 1,483 Experience gains/(losses) on scheme liabilities 6,715 2,009 (5,312) 12,464 (3,194)Experience (losses)/gains on employer assets 127,173 (28,201) 50,600 16,239 35,246

( j) Sensitivity AnalysisPension liabilities are calculated using actuarial estimates as shown in Note 29(b) above. If the major assumptions were to change, the impact on the defined benefit obligation would be as follows:

Adjustment to discount rate +0.25% current -0.25%Present value of total obligation 742,227 779,191 818,027 Movement (36,964) - 38,836

Adjustment to inflation +0.25% current -0.25%Present value of total obligation 815,409 779,191 744,604 Movement 36,218 - (34,587)

Adjustment to life expectancy +1 year current -1 yearPresent value of total obligation 801,515 779,191 757,155 Movement 22,324 - (22,036)





(k) Maturity profile of the defined benefit obligationThe weighted average duration of the defined benefit obligation of the pension schemes is 20 years.

Pension benefits, including insurance premiums, are expected to be paid over time as follows:

£’000Within 5 years 90,866 5-10 years 100,769 After 10 years 587,556 Total defined benefit obligation 779,191

(l) Funding arrangementsContribution rates for each of the three schemes are reviewed at least every three years following a full actuarial valuation. The funding strategy in each case is set to target a fully funded position, except for those liabilities which are intentionally unfunded within the West Sussex scheme. Any underfunding is restored to a fully funded position via additional contributions over an appropriate period of time.

The HCA scheme is a multi-employer scheme that does not operate on a segregated basis. Therefore the assets and liabilities are not separately identified for individual participating employers. Benefit obligations are estimated using the Projected Unit Credit Method. The Agency is the only significant contributing employer, and accounts for over 99% of the HCA scheme’s liabilities.

There are no formal arrangements in place for the allocation of a deficit or surplus on the wind-up of the plan or the Agency’s withdrawal from the plan. Under both scenarios, exit debts would become payable under Section 75 of the Pensions Act 1995.

The Westminster and West Sussex schemes are members of the Local Government Pension Scheme (LGPS). Assets and liabilities for all employers in LGPS funds are identifiable on an individual employer basis. There are no minimum funding requirements or winding up provisions in the LGPS. Any deficit on withdrawal is required to be paid by the withdrawing employer and any surplus is retained by the fund.



30. Financial assets and financial liabilities

Group and AgencyThe original cost and carrying values of the Agency’s financial assets, by classification, are as follows:

2017 2017 2016 2016Original

costCarrying

valueOriginal

costCarrying

valueNote £’000 £’000 £’000 £’000

Loans and receivablesCash and cash equivalents 25 185,058 185,058 135,240 135,240 Trade and other receivables 24 270,324 264,120 245,664 239,041 Loans 22 851,829 832,913 647,250 626,421 Available for saleAvailable for sale financial assets 21 6,217,128 6,417,932 4,268,140 4,440,010 Total financial assets 7,524,339 7,700,023 5,296,294 5,440,712

There are no significant differences between the carrying value and fair value of the assets above, except for those described in note 31.

Prepayments, tax, social security and reimbursements in respect of provisions are excluded from the table above as these are non-financial assets. The fair values of the financial assets above are determined as described in Note 31.

The carrying values and fair values of the Agency’s financial liabilities, by classification, are as follows:

2017 2016£’000 £’000

Other financial liabilitiesTrade and other payables 263,101 183,412 Provisions - 144 Total financial liabilities 263,101 183,556

There are no differences between the carrying value and fair value of the liabilities above.

Deferred income, tax, social security and certain provisions are excluded from the table above as these are non-financial liabilities. The fair values of financial liabilities above are determined as described in Note 31.




31. Fair value of financial assets and financial liabilities

The fair values of financial assets and liabilities are determined as follows:

■■ The fair values of available for sale financial assets relating to housing units are calculated with reference to movements in the ONS house price index (UK HPI) at a regional level, being the most relevant available observable market data. This is supplemented by adjustments for experience of actual disposals since the inception of the schemes, also at a regional level. Therefore these fair values are categorised as level 2 in the fair value hierarchy as defined by IFRS 13.

■■ The fair values of available for sale financial assets relating to equity investments in development and infrastructure projects are calculated using cashflow forecasts for the projects concerned, discounted at rates set by HM Treasury. These fair values are therefore categorised as level 3 in the fair value hierarchy as defined by IFRS 13.

■■ The fair value of managed funds are equal to the net assets of those funds at the reporting date, and are therefore categorised as level 3 in the fair value hierarchy as defined by IFRS 13.

Differences between the fair value at initial recognition as calculated using the methods described above and the price paid by the Agency to acquire the instrument are released over the expected life of the instrument in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Changes in the aggregate gains/(losses) yet to be recognised in net expenditure are as follows:

Group and Agency2016/17 2015/16

£’000 £’000At 1 April 336 9,318 Gain arising on initial recognition - 1,169 Released (336) (10,151)At 31 March - 336

32. Financial risk management

The Group and Agency’s financial assets and liabilities are detailed in Note 30. The statements in this Note apply to both the Agency itself and the Group, except where indicated.

The exposure to financial risk arising from loans, receivables and available for sale financial assets is a key focus for management. In order to mitigate this risk, the Agency adopts the following approach to transactions with developers:

■■ Potential exposure to credit risk is subject to a level of analysis which would be seen in UK financial institutions, which includes the consideration of aggregated exposures where applicable, concentration by geography and real estate type;

■■ For existing recoverable investments the financial cash flows are monitored on a monthly basis against expected cash demands and repayments driven by the client’s agreed cash flows by facility and reported to Central Finance;

■■ Development agreements resulting in the sale of property are normally secured by the Agency’s right to retake possession of the disposed property in the event of a default by the buyer;



32. Financial risk management (continued)

■■ Loan and equity agreements are generally backed by a charge on land, parent company guarantees or other available security as appropriate to the individual circumstances. These are subject to individual review and structuring.

(a) Market price riskThe Agency’s results and equity are dependent upon the prevailing conditions of the UK economy, especially UK house prices, which significantly affect the valuation of the Agency’s financial and non-financial assets.

In particular, the Agency is exposed to significant market price risk in its available for sale financial assets. These financial assets include the Agency’s interests in housing units and private sector developments located in geographically diverse areas within the UK. As these assets are classified as available for sale, any market price movements are reflected in net expenditure for the period when an impairment is reported, or otherwise as changes in equity.

The Agency has performed a sensitivity analysis that measures the change in fair value of the financial assets held for hypothetical changes in market prices. The sensitivity analysis is based on a proportional change to all prices applied to the relevant financial instrument balances existing at the year end.

Housing unitsAt 31 March 2017, if UK house prices had been 10% higher/lower and all other variables were held constant, the effect on the Agency’s reserves arising from movements in investments in housing units, before the effects of tax, would have been an increase/decrease of £618m/£994m from that stated. This illustrates the impact of the mortgage providers’ first charge, which disproportionately increases the estimated level of impairments when house prices reduce, for example in the cases of modelled reductions in house prices shown in the table below:

Modelled change in house prices

Estimated portfolio value (£m)

Incremental change in fair value (£m)

Incremental change in fair value (%)

Incremental impairment (charge)/reversal made to net

expenditure (£m)-25% 2,534.4 (3,597.5) -58.7% (3,292.5)-10% 5,138.4 (993.5) -16.2% (775.2)

-5% 5,724.3 (407.6) -6.6% (273.7)-1% 6,063.1 (68.8) -1.1% (36.4)0% 6,131.9 - 0.0% -

+1% 6,196.7 64.8 1.1% 32.7+5% 6,443.0 311.1 5.1% 107.0

+10% 6,749.9 618.0 10.1% 129.1





Private sector developments and infrastructureAt 31 March 2017, if development returns had been 10% higher/lower and all other variables were held constant, the effect on the Agency’s reserves arising from movements in investments in private sector developments and infrastructure projects, before the effects of tax, would have been an increase/decrease of £28.6m/£28.6m from that stated.

(b) Credit riskCredit risk is the risk of financial loss where counterparties are not able to meet their obligations. The Agency’s maximum exposure to credit risk, without taking into account any security held, is the same as the carrying amount of financial assets recorded in the Financial Statements, as disclosed in Note 30.

The nature and concentration of the credit risk arising from the Agency’s most significant financial assets can be summarised as follows:

■■ Available for sale financial assets relate mainly to amounts receivable individually from the private owners of housing units when their properties are sold, or amounts receivable from various private sector developers, resulting in a broad spread of credit risk for these assets. Amounts receivable from the owners of housing units are secured by a second charge over their property.

■■ Four private sector developers account for 33% of development loans (2016: 42%). Loans to a single private sector developer account for 13% of infrastructure loans (2016: 21%). 48% of other loans relate to a major public utility company (2016: 45%). The remainder of the loan portfolio is dispersed amongst private sector developers and local authorities.

■■ Receivables arise largely from disposals of development assets, generally to major developers and housebuilders in the private sector. These receivables are always secured by the Agency’s right to retake possession of the disposed property in the event of a default by the buyer, and in appropriate cases are backed by financial guarantees.

■■ The Agency’s cash is generally held with the Government Banking Service, except where commercial reasons necessitate otherwise, for example when cash is held by solicitors around completion of property sales or purchases.

There are no significant concentrations of credit risk in the Agency’s other financial instruments.

For all financial assets excluding cash, the maximum exposure to a single counterparty at 31 March 2017 was £90.3m (2016: £107.5m), and the five largest counterparties accounted for 4.5% of the total balance (2016: 7.0%).

Credit Policies are developed which set the context of the appetite for risk, requirements for risk assessment (both at the outset and through the cycle of facilities provided) and the operational aspects of managing the overall risk profile.

Loans are subject to ongoing review with established procedures to use, and react to, early warning signs. This enables the Agency to consider the need for more intensive management to protect the exposure or if needed undertake a structure review to consider whether specific impairments are required. Forbearance is considered as part of any assessment and review of the customer risk rating during the term of facilities.

All assessments and approvals are operated within a structured approval delegation matrix from HM Treasury and DCLG.




(c) Interest rate riskThe Agency is exposed to interest rate risk on its financial assets classified as loans and receivables, where these pay interest at a variable rate. For the majority of the Agency’s loan portfolio, the variable element is the EC Reference Rate (0.78% as at 31 March 2017). Consequently, the downside risk to the Agency is limited to this rate.

If interest rates on the Agency’s variable rate loans and receivables had been 1% higher/lower throughout the year ended 31 March 2017, the Agency’s net expenditure for the year, before the effect of tax, would have been £6.5m higher/lower.

(d) Liquidity riskLiquidity risk is the risk that the Agency will be unable to meet its liabilities as they fall due.

To the extent that the Agency’s liabilities cannot be met from its own sources of income, they may be met by future grants or grant in aid from the Agency’s sponsoring department, DCLG. Such grants are paid on a monthly basis to fund net liabilities as they are expected to fall due. Short term liquidity is managed through the investment of any cash surpluses with the Government Banking Service.

The Agency does not allow the use of more complex financial instruments, which could result in increased financial liabilities, such as derivatives.

Substantially all of the Agency’s financial liabilities (as described in Note 30) are contractually due within one year of the reporting date.

(e) Currency riskThe Agency’s dealings are almost entirely Sterling denominated, and therefore the Agency has no material exposure to currency risk.

33. Operating leases

As at 31 March 2017 the Agency had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

2017 2017 2016 2016Land and Land andBuildings Others Buildings Others

£’000 £’000 £’000 £’000Within one year 2,284 511 2,527 831 Between one and five years 4,857 482 6,372 609 In more than five years - - 415 -

7,141 993 9,314 1,440

The Agency leases certain land and buildings for its own use, mainly as offices, normally with minimum lease terms of no more than 10 years and rent reviews every five years.

HCA has not yet entered into a formal operating lease with DCLG for the occupation of its London Office. The Agency has paid rent of £2.1m during the year but as no formal lease exists, it is not possible to arrive at a commitment term. The above commitment figures do not therefore include future rentals in respect of this building.




33. Operating leases (continued)

As at 31 March 2017 the Agency had granted leases for land and buildings with future minimum sub-lease payments expected to be received which fall due as shown below. As required by IAS 17 Leases, the figures shown are not discounted to reflect the time value of money. Comparatives have been restated to better reflect the substance of sub-leases and to improve comparability with this year's disclosure.

2017Restated

2016£’000 £’000

Within one year 4,767 2,762Between one and five years 10,456 5,408In more than five years 13,756 14,928

28,979 23,098

The Agency leases certain of its development assets as lessor. As development assets, these properties are held for regeneration or ultimate disposal in the course of the Agency’s ordinary activities. In many cases properties may be disposed of with their rental income stream, therefore it is unlikely that the Agency will ultimately receive the full amounts shown above as sub-lease income.

34. Contingent assets and liabilities

Contingent assetsThe Agency has in certain instances disposed of land or made grant payments with certain conditions attached, which if no longer fulfilled will result in a payment to the Agency. Examples include where there is a subsequent change in use of land sold which materially increases the return to the purchaser, or if the conditions of a grant payment are no longer met. The normal term during which this arrangement remains in force is 21 years. For affordable housing and other community related schemes the term is more usually 35 years. By its nature this income is variable and the timing of receipt is uncertain, therefore it is not possible to quantify the likely income which may ultimately be received by the Agency.

Contingent liabilities

(a) Sunderland City CouncilThe freeholds of several hundred properties on two estates in Washington were transferred to Sunderland City Council on 1 April 1997. The transfer was subject to an Agency indemnity valid for a period of 30 years against costs which may be incurred in remedying shale related defects. This indemnity was issued with the approval of DCLG. The extent of the potential liability will only be known once any defects are identified. No claims have yet been notified under this indemnity.

(b) Other contingent liabilitiesThe Agency is potentially liable for miscellaneous claims by developers, contractors and individuals in respect of costs and claims not allowed for in development agreements, construction contracts, grants and claims such as Compulsory Purchase Orders. Payment, if any, against these claims may depend on lengthy and complex litigation and potential final settlements cannot be determined with any certainty at this time. As claims reach a more advanced stage they are considered in detail and specific provisions are made in respect of those liabilities to the extent that payment is considered probable.



35. Financial commitments

The Agency has made financial commitments for loans and equity investments which had become unconditional at the reporting date, but which had yet to be drawn down by that date. The value of these commitments, excluding those disclosed in Note 20(c), was £1,149m at 31 March 2017 (2016: £873m).

In addition to the above, the Agency has given outline approval to investments under the Help to Buy scheme which, while still conditional, are likely to result in the drawdown of investments in the coming year. The value of these outstanding approvals at 31 March 2017 was £1,385m (2016: £890m).

36. Related party transactions

The Agency is a non departmental public body sponsored by DCLG. Hence any other bodies sponsored by DCLG are considered to be related parties. During the year, the Agency has had a significant number of material transactions with DCLG.

The Agency has had a number of material transactions with other government departments and other government bodies, including various local authorities, the Department for Business, Energy & Industrial Strategy (previously the Department for Business, Innovation and Skills), the Department of Health and the Ministry of Justice. The Agency has also had a number of material transactions with its associated undertakings and joint ventures as follows:

2016/17

Capital invested in/ (redeemed

from) entity

Grants and other payments

Loans/ equity

advanced/ (repaid)

Loan interest

receivedNote £m £m £m £m

Housing Growth Partnership Limited 20 (b) 0.9 - - - Countryside Maritime Limited - - 0.3 - English Cities Fund Limited Partnership - 2.0 - -

2015/16

Capital invested in/ (redeemed

from) entity

Grants and other payments

Loans/ equity

advanced/ (repaid)

Loan interest

received£m £m £m

Housing Growth Partnership Limited 3.3 - - - Countryside Maritime Limited - - (0.5) - English Cities Fund Limited Partnership (10.0) 0.7 (0.3) -

The Agency’s internal approval procedures are established so that members of staff nominated to act as Directors or Officers of associated undertakings and joint ventures do not have delegated authority with regard to the relevant undertaking.

One Agency Board Member is a board member of a major utility company, with which the Agency incurred utility costs of £1,000. The Agency necessarily has many property related transactions with utility companies due to its significant property portfolio, and the Board Member concerned had no influence on the procurement process or the terms of the transactions, which were the same commercial terms as those available to other customers.




36. Related party transactions (continued)

There were no other transactions in which Board Members and related parties had a direct or indirect financial interest.

None of the senior managers or related parties has undertaken any material transactions with the Agency during the year.

37 Events after the reporting period

In May 2017 the Agency transferred the remainder of the JESSICA fund to Liverpool City Region Combined Authority at its market value of £37.7m, as described further in note 18.

The Agency’s Financial Statements are laid before the Houses of Parliament by the Secretary of State for Communities and Local Government. IAS10 Events After the Reporting Period requires the Agency to disclose the date on which the accounts are authorised for issue. This is the date on which the certified accounts are despatched by the Agency’s management to the Secretary of State for Communities and Local Government.

The certified accounts were authorised for issue by the Chairman and the Chief Executive and Accounting Officer on the same date as the Certificate and Report of the Comptroller and Auditor General.



GETTING IN TOUCH

GOV.UK/hca [email protected] 0300 1234 500HCA Offices

London Fry Building 2 Marsham Street London SW1P 4DF

WarringtonRegistered address for legal documents: Arpley House 110 Birchwood Boulevard Birchwood Warrington WA3 7QH

BedfordWoodlands Manton Lane Manton Industrial Estate Bedford MK41 7LW

Birmingham5 St Phillips Place Colmore Row Birmingham B3 2PW

BristolRivergate Temple Quay Bristol BS1 6EH

CambridgeEastbrook Shaftesbury Road Cambridge CB2 8BF

ChathamSecond Floor The Observatory Brunel Chatham Maritime Kent ME4 4NT

GatesheadSt George’s House Kingsway Team Valley Gateshead NE11 0NA

Leeds2nd Floor Lateral House 8 City Walk Leeds LS11 9AT

ManchesterLevel 1A City Tower Piccadilly Plaza Manchester M1 4BT

Nottingham3rd Floor Apex Court City Link Nottingham NG2 4LA

GOV.UK/hca [email protected] 0300 1234 500

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Documents

HCA ANNUAL REPORT AND FINANCIAL … · Homes and Communities Agency (HCA), its main objectives and strategies and the principal risks it faces. It is divided into three sections: