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Homes England made six-figure ‘fruitless payment’ as part of £148.3m loan write-offs
Homes England made a “fruitless payment” of £400,000 to a third-party service provider as part of a number of loan losses during the financial year that totalled £148.3m.
The loan write-offs were revealed in the Department for Levelling Up, Housing and Communities’ (DLUHC) annual accounts for the financial year 2022-23.
Under the section ‘losses, special payments and gifts’, DLUHC’s accounts state: “During 2022-23 there were six cases of loan losses recognised where the amount written off or impaired for accounting purposes was in excess of £300,000, totalling £148.3m.
“A fruitless payment of £400,000 was made. Homes England agreed to pay £400,000 to a third-party service provider in line with contractual mechanisms following delays to implementation of the services under the contract.”
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The government’s housing agency explained that under the guidance on how to handle public funds, titled ‘Managing Public Money’, fruitless payments are defined as a legally required payment for which no additional goods or services are received.
The agency said it cannot always provide the individual loan details due to commercial sensitivities.
However, the provisions of a contract between Homes England and a supplier contain what it described as the usual ‘contract change’ arrangement in line with what is normally found in multi-year public/private contracts.
This means that where a public sector body’s actions cause the supplier to breach its obligations, then the supplier must serve a relief notice. The result is that the supplier is given ‘relief’ from the breach, and may be entitled to an additional payment from the public sector body.
In this case, Homes England said the payment was made to the supplier on a fully commercial basis following service of a relief notice.
Since its loans programmes began in 2012, the agency said it has successfully recovered £242m against £376m debt and gone on to deliver or unlock capacity for 24,500 homes through distressed or stalled schemes.
This means that although Homes England prudently impairs loans, it explained that this process does not mean they are then not recovered in part or in whole at a later date.
A Homes England spokesperson said: “Like all lenders, we have increased our loan loss provisions in the face of economic volatility and considering that we often lend on the margins of viability, to stimulate delivery with SMEs and new industries, or where low lending liquidity exists, our loss rate is very low.
“Across our full loan book, Homes England (and its predecessor organisations) has contracted £5.8bn loans since 2012, of which £179m capital is impaired or written off.
“This represents an annual loss rate of approximately 0.3%, which is substantially covered from interest received on our loan book, and is considerably lower than the maximum loss rates of 20%-40% allowed for by HMT [the Treasury] when approving our loan programmes.
“We are committed to using all the tools at our disposal to ensure that new homes continue to be built and communities continue to be supported, to deliver their long-term plans for regeneration and renewal.”
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