1 February 2011
Ministers today set out how they intend to pass control of social housing finance to councils.
The move follows provisions in the Localism Bill to scrap the housing revenue account, under which rents are passed on to Whitehall and then redistributed. The HRA is to be replaced by a self-financing system in April 2012, which will allow councils to retain their own rents and manage their housing stock as they see fit.
Implementing self-financing forcouncils, published today, sets out how the move to self-financing will work in practice. It requires a one-off adjustment of councils’ housing debt. This new debt level will reflect the value of a council’s housing stock, which will in turn be calculated by assumptions about housing income and expenditure over a 30-year period.
The document states: ‘If this [housing stock] valuation is lower than the amount of housing debt which is currently supported through the housing revenue account subsidy system, government will pay off the difference. If the valuation is higher than the debt supported by housing revenue account subsidy, the local authority will be required to pay government the difference.’
Any payments due from Whitehall to councils will in most cases not be paid directly but used to redeem debt held with the Public Works Loan Board.
Launching the guidance today, housing minister Grant Shapps said he had ‘fired the starting gun on a council housing revolution’. He added: ‘This deal brings to an end a centralised system which meant councils didn’t know what funding they would get for housing from one year to the next and were unable to take key decisions on their housing stock.
‘By giving [councils] clarity on their future revenue and the freedom they have to decide what is best in their local area, they can now start preparing for this council housing revolution that will begin next year. They now have the tools and incentives to radically overhaul the housing services they provide and deliver better value for money.’
The self-financing settlement includes an additional £500m for councils to spend on their housing stock and an extra £116m to pay for disability adaptations in council houses. Funding for maintenance, repairs and adaptations will be 14% higher than under the housing revenue account subsidy system, Shapps claimed.
But there will be certain constraints for councils under the self-financing system. Borrowing will be capped with each authority given a council housing borrowing limit, likely to be set at the level of their self-financing valuation.
Councils will also still have to maintain their own housing revenue account.
The policy document states: ‘Local authorities will still be required to account to their tenants for income from and expenditure to council housing separately from income and spending on other functions and services. This ensures that council taxpayers do not subsidise services specifically for the benefit of tenants and that rent is not used to subsidise functions which are for the benefit of the wider local community.’
CIPFA has
developed draft guidance on an accounting framework for self-financing, which was published for consultation today.
Alison Scott, assistant director of policy at CIPFA, said: ‘These changes amount to a revolution in council housing finance. CIPFA is consulting widely on the proposed capital finance arrangements and the responses will inform further CIPFA guidance, which will help implement these changes effectively.’
The consultation ends on February 28.
