Local government finance circular 6/2024: council tax on second and long-term unoccupied homes guidance

5. Ring-fenced income

This income may be used by local authorities or provided to other organisations and individuals including Registered Social Landlords (RSLs) to support revenue and capital expenditure related to a range of affordable housing and empty homes activity including (but not limited to):

• providing new-build affordable housing through RSLs or new council house building
• funding of specified elements of water and sewerage infrastructure for new homes

• bringing empty properties back into use (into the social sector where possible) – including funding for empty homes officer posts, loans and grants for repairs, renovations, and projects that involve partnership working with others e.g. third sector organisations
• land acquisition for affordable housing development
• purchasing off-the-shelf houses from private developers for affordable housing use – including the purchase of developers’ part-exchange properties

5.1 Use of income on existing Council or RSL houses

The Scottish Government does not expect local authorities to use the income to pay for routine maintenance and refurbishment of existing social rented stock. This includes improvement made towards meeting the Scottish Housing Quality Standard (SHQS). Both local authorities and RSLs, as responsible landlords, should have robust programmes in place to ensure that their stock is maintained and refurbished to a high standard expected by tenants.

The income could, however, be used towards a particularly innovative scheme involving existing stock. An example could be to fund a scheme, which sought to improve the energy efficiency of homes significantly beyond the SHQS. Such a scheme would contribute toward climate change targets, reduce utility bills for tenants and potentially lift some tenants out of fuel poverty.

5.2 Diligence in relation to potential projects

In making decisions on the funding of organisations and individuals, local authorities will wish to assess the financial viability of projects and issues related to security of tenure and affordability.

Local authorities may use the additional income to fund or support discrete projects or top up funding from other sources. In doing so they need to ensure that they are compliant with the UK’s international commitments on subsidy control. This includes the Subsidy Control Act 2022, the EU-UK Trade and Cooperation Agreement (TCA), World Trade Organisation Membership, and any commitments arising from international treaties and agreements to which the UK is a party. Note, the Subsidy Control Act 2022 is applicable from 4 January 2023.

A local authority may use this income to support prudential borrowing for new council house building and any of the housing activities listed above is permitted. This could mean a local authority taking on long term commitments that it will need to be able to service even if the additional ring-fenced income reduces over time. It is for local authorities to administer this in line with the prudential code for capital finance.

5.3 Strategic planning

Local authorities should set out future plans for expenditure of the ring-fenced income in their Strategic Housing Investment Plans, which reflect the key objectives set out in their LHS. In addition, the Scottish Empty Homes Partnership have developed the Empty Homes Framework guidance and toolkit to assist local authorities in setting out detailed action plans to support delivery of an empty homes strategy. These strategies should align with LHSs and Strategic Housing Investment Plans (SHIP).