The directors present the strategic report for the year ended 31 March 2022.
This is the third set of financial statements produced by Capital Letters (London) Limited ("Capital Letters") since the company was established in December 2018 by 13 London Boroughs as a response to the growing homelessness crisis facing the Capital and the introduction of the Homeless Reduction Act. The purpose of the company is to increase the supply of rented accommodation for homeless families in London, drive down costs for members by removing unproductive competition and create one organisation to represent the interests of its member London Boroughs and act as the principal point of contact for landlords and agents providing properties for homelessness relief. Tenancy sustainment is another key element of the company’s purpose and activities. By the end of 2021/22 membership had grown to 21 boroughs, with 18 active members. Capital Letters is wholly owned by its member boroughs.
It is a membership condition that members invest in the company by providing resources to access the totality of Capital Letters’ services. The company is founded on the principle of fair distribution of properties procured for its members in proportion to the investment made. Members invest in the company by seconding or funding procurement staff with the remainder of the company’s staff currently funded by grant from the Department of Levelling Up, Housing and Communities (DLUHC).
Capital Letters continues to be supported by DLUHC who confirmed in March 2022 that funding would be extended for a further two years, to 31st March 2024, awarding £14.1 millions of Flexible Homelessness Support Grant for 2022/23 and 2023/24. The grant is split into two elements: £10.1million to meet operating costs incurred in procuring private sector rented properties for members boroughs to place homeless families and support those families to sustain their tenancies; and £4.0 million to reduce the cost of the boroughs incentive payments to private sector landlords.
Formed in 2018, the company began trading in July 2019 procuring its first properties in September 2019. Since then, a total of 5,636 properties have been offered to members and 3,730 properties let to homeless families, saving members an estimated £15 million based on an agreed savings estimate of £4,000 per let compared to the cost of a PSL property over the same two year period. In addition, members have received over £3.4 million in grant to offset the cost of incentive payments to landlords.
During the financial year 2021/22, 2,615 properties were offered to member boroughs and 1,836 were let, saving members an estimated £7.3 million over the two years of the tenancies assuming £4,000 saving per tenancy as above; members received £1.4 million in grant from DLUHC.
During the financial year since April 2021, as the country has come out of the Covid19 pandemic, there has been a significant shift in the private rented sector market characteristics across London. After a strong start in the first quarter, the number of private landlords offering properties to Capital Letters at or below local housing allowance rents has reduced significantly, from 1,110 in quarter one to 485 by quarter four and further to 342 in quarter one of 2022/23. We are seeking to mitigate this reduction in procurement of affordable homes by developing a range of new services for landlords, including a new insurance product and the development of strategic relationships with large London property agents with the aim of being their partner of choice for lets at local housing allowance rents.
To help members to effectively respond in a coherent way to the London homelessness crisis Capital Letters has and will continue to develop its strategic role through commissioning research and gathering evidence to support members to make informed decisions when shaping services to respond to the changes in the private rented sector seen over the past year. This is coupled with raising Capital Letters’ profile through events like the first conference dealing with the issue of family homelessness led by Capital Letters ‘All Change Please: Reimagining Solutions to Family Homelessness’ (https://capitalletters.org.uk/conference/), held on 6th July 2022, and the use of public affairs lobbyists to raise the profile of Capital Letters’ work and the impact it is having on family homelessness across London.
Because of the difficulties in sourcing sufficient supply of properties affecting all London boroughs, there has been a renewed interest from non-members in joining Capital Letters, and it is expected that during 2022/23 membership will reach 25 boroughs, 80% of all London Boroughs, making Capital Letters a truly pan-London collaborative venture and a force for change.
The other main service Capital Letters provides for members is it’s ‘light touch’ tenancy sustainment service. Capital Letters offers the tenancy sustainment service to all tenants who start a tenancy in a property procured by Capital Letters and is taken up by 80% of those who are offered the service. With only a few member boroughs providing such a service, providing this to all tenants is a critical part of Capital Letters’ work .
Uniquely, this service is also offered to all private sector landlords who let a property through Capital Letters and can make the difference in persuading them to let to a low-income family or not. There is a growing body of evidence, derived through academic research, that the provision of tenancy support is the determining factor between a tenancy succeeding or failing. The consequences of the latter, both in terms of the emotional impact on the families concerned as well as the financial cost of repeat homelessness for member boroughs, cannot be underestimated. During the year the service assisted an average of 511 families a month and secured £766,000 in the form of universal credit or housing benefit claims and discretionary housing payments, loans, and grants for 298 households. This work has significantly contributed to a reducing the number of evictions in the Capital Letters’ sourced properties compared to tenancies that are not supported and is valued by both tenants and landlords.
Turnover for the period was £12.4 million (£9.9 million in 2020/21). This was comprised of £5.9 million grant income form DLUHC (£4.9 million in 2020/21). Direct costs amounted to £6.7 million (£6.2 million in 2020/21) and administrative expenses £5.6 million (£3.7 million in 2020/21). This increase in administrative expenses is principally because of an increase in staff numbers over the year and the impact of a full year’s cost of the staff recruited in 2021/22. The operating profit was £0 and cash in hand on 31st March 2022 was £3 million.
During the year the staffing complement grew by 17 to 107 full time equivalents including staff seconded from member boroughs at 31st March 2022. During 2022/23 staff numbers in the core business funded by DLUHC are not expected to increase significantly.
It has always been the expectation that in the long term, Capital Letters will replace the DLUHC grant by generating independent income streams sufficient to meet the company’s core business costs, which are the usual services provided for all members. The extension of the grant to March 2024 provides Capital Letters with the time to develop necessary income streams, both within the core business and through new services to become financially self-sufficient. Core business initiatives include:
Introducing annual membership fees from April 2023
Collecting rent and managing properties for landlords for a fee
Providing insurance for landlords to protect against rent arrears
Developing strategic relationships with portfolio landlords, agents and investors to secure consistent supply of LHA properties
It is however recognised that income derived through the company’s core services will not be sufficient to meet the costs in delivering these, currently circa £5 million. In order to supplement the core business initiatives, Capital Letters is developing a hybrid funding model which will result in the company becoming a private sector landlord and will secure up to an additional 4,000 homes over a five year period, the majority of which will be available for some member boroughs to use to discharge their homelessness responsibilities. These properties will be funded through either long-term reversionary leases or debt finance. The raising of this capital will require member boroughs to provide a form of guarantee to allow Capital Letters to use their covenant to raise affordable finance. Work is proceeding to secure requisite approvals during the autumn of 2022. It is hoped to start purchasing/leasing properties during 2023/24.
Following a review by the senior executive, cost savings have been implemented effective from April 2023. The executive team continue to identify opportunities to reduce overheads to ensure that the company’s services are cost efficient and value for money.
Looking forward over the next two years as Capital Letters becomes self-sufficient financially, the need for a pan London approach to finding solutions to family homelessness and enabling families to move out of temporary accommodation becomes ever more urgent with the market for lets at local housing allowance rents shrinking post pandemic.
We expect that the situation experienced in the last quarter of 2021/22 will be compounded by the rising costs of temporary accommodation across London as result of more families presenting as homeless, increasing rents, decreasing supply and exacerbated by the cost-of-living crisis. With the backing of its members Capital Letters is designed to efficiently engage with the private sector housing market to protect and increase supply through its core business and to increase supply further by becoming a landlord in its own right.
The perfect storm of the current environment has resulted in a growing acknowledgement of Capital Letters’ pan-London oversight of the entire market and role in bringing members together to work in partnership in the face of the challenges experienced by all those operating in the homelessness sphere. The company is developing the evidence base for members, working together for London, to support data-driven decision making and commissioning strategic research on behalf of all members to shape policy and practice responses in partnership. Capital Letters has led the development of a three-year strategic Capital Plan in partnership with our member boroughs. The jointly owned and commissioned Plan is the culmination of conversations held with members during March to June 2022. It brings together the ideas generated in these discussions about what we can do better and differently together in partnership to effect lasting, systemic change in processes and address the contraction of supply for the benefit of all London.
Capital Letters will also expect to develop its strategic role in tackling London homelessness and in supporting its members to develop sustainable communities and drive up the standards of private rented sector homes supported by research projects commissioned by Capital Letters.
Looking forward, the biggest challenges now facing Capital Letters are:
Securing member guarantees for Capital Letters’ new business to allow it to seek funding from a variety of investors
Establishing the company’s new subsidiary and governance structure as the vehicle for the company’s landlord
Establishing the company’s own housing management service and other income streams to enable the business to become financially self-sufficient
Continuing to adapt the business to be able to respond to the changes taking place in the private sector housing market across London
Undertaking a review of the current core business costs to reduce these and thus the reliance on new income streams
Developing Capital Letters reputation as thought leader and driver of change, working in partnership with stakeholders to develop workable solutions to the homelessness crisis based on sound research, evidence, and reliable data.
Capital Letters and its members have learnt a lot over the past twelve months and there is no doubt that those members who have embraced the changes in working practices required to enable Capital Letters to operate effectively and deliver on their behalf are now seeing significant cost savings as families are moved out of expensive temporary accommodation. Landlords are also seeing benefits from using Capital Letters by having prompt payments of incentives and access to the tenancy sustainment service. 2022/23 will be a pivotal year in which we will secure the long-term future of the business with members’ support and work in partnership to develop creative solutions to the current market challenges.
In July 2021, the Board of Directors adopted the updated National Housing Federation (‘NHF’) Code of Governance 2020 which replaced the 2015 version which it had previously adopted. The NHF formally launched the Code from April 2022. The company is currently undertaking a gap analysis of current governance arrangements compared to the new Code requirements which will be completed later in 2022. In terms of compliance with the 2015 Code, the Board confirmed, on a comply or explain basis, that Capital Letters complied with all elements of the 2015 Code that were relevant to the Company, with one area for improvement with respect to Board diversity. Most directors are officers of member London Boroughs and not appointed through an open recruitment process. The Company is committed to Board diversity, and this is a topic that continues to be discussed and monitored by the Remuneration & Membership Committee.
On behalf of the board
Capital Letters (London) Limited is a private company limited by guarantee, domiciled and incorporated in England and Wales . The registered office is 27 Clements Lane, London, United Kingdom, EC4N 7AE.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
Income and expenses are included in the financial statements as they become receivable or due.
Expenses include VAT where applicable as the company cannot reclaim it.
Government grants are recognised at the fair value of the asset received or receivable. A grant without specified future performance conditions is recognised in income when the grant proceeds are receivable. A grant that imposes specified future performance conditions is recognised in income when those conditions are met.
Government grants are presented separately from the assets to which they relate. Government grants recognised in income are presented separately in the notes. Government grants received before the income recognition criteria are satisfied are presented as a separate liability in the statement of financial position.
Incentives and void payments made to landlords recognised at cost when due and income from reimbursement charged to member boroughs is shown at cost less DLUHC grant when due.
Staff employed on behalf of boroughs who do not second staff are recharged at a fixed annual fee recognised when due each quarter.
No amount is recognised for those forms of government assistance that cannot reasonably y have a value placed on them. However, the entity discloses information about such assistance.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to surplus or deficit .
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
As a company limited by guarantee Capital Letters is not designed to make profits, Therefore to ensure this is reflected in the financial statements all grant received in advance is treated as deferred income in the accounts and the balance is included in creditors due within a year on the balance sheet. This reflects the position that there is no requirement to repay the grant under the tripartite Memorandum of Understanding between Capital Letters, the Department of Levelling Up Homes & Communities, and Tower Hamlets provided it is spent in subsequent years in accordance with the companies’ objectives.
The average monthly number of persons (including directors) employed by the company during the year was:
The company is limited by guarantee, not having a share capital and consequently the liability of members is limited, subject to an undertaking by each member to contribute to the net assets or liabilities of the company on winding up such amounts as may be required not exceeding £1.
As the income statement has been omitted from the filing copy of the financial statements , the following information in relation to the audit report on the statutory financial statements is provided in accordance with s444(5B) of the Companies Act 2006 :
The auditor's report was unqualified.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, as follows:
During the year income of £4,599,163 (2020: £401,962) was invoiced to the London Borough councils who jointly set up Capital Letters (London) Limited. At year end there was an amount of £1,096,099 (2020: £198,881) that was still outstanding at year end.