The £20bn question, by Ken Lee

4 Feb 10
KEN LEE | Why should debt-free councils take on the housing burdens of other authorities? Section 151 officers must decide soon

Why should debt-free councils take on the housing burdens of other authorities? Section 151 officers must decide soon

Housing authority section 151 officers need to sharpen their pencils and hone their spreadsheet skills. The government is going to make them an offer that will be difficult to refuse – one that allows them to be free of the shackles of the housing revenue subsidy system.

Reform of the system is well overdue. It started last century as a mechanism for central government to help local authorities provide accommodation for First World War returning soldiers. Today, it is so complicated that one housing minister claimed to reach for a wet towel to wrap around her head whenever it was mentioned. It’s still a subsidy system, but one where rent from tenants lines Treasury coffers.

The offer, expected in a few weeks, involves huge sums of money – around £20bn worth of debt is to be reallocated to authorities on the basis of what can be afforded. Thirty-year housing revenue account business plans will be required to back this up and section 151 officers are going to have to sign these deals off. Clearly, there are challenges.

Why would a debt-free authority take on these burdens from other authorities?  Well, there are some prizes for this bold move: keeping all rents locally; greater local influence over social housing; and certainty over housing financial matters encouraging longer-term asset planning and management. But are these enough?

The current system is broken; planning over a longer period will surely provide more stability. Authorities with arm’s-length management organisations found that, with greater forward awareness of funding, they were able to gain millions of pounds of value-for-money savings on multiyear contracts. This ensured that every pound went that bit further – which is vital in the current financial climate.

The Department for Communities and Local Government asked CIPFA to advise on the thorny task of moving £20bn debt around the country. Authorities whose debt is going down face choices over the loans that are to be repaid, with experts claiming that early repayment premiums could cost billions of pounds. Authorities taking on debt face questions: fund internally or externally? If external, what type – fixed or variable? How long is the period of repayment and what is the method?

The HRA will be locked into a 30-year income flow – but should the debt also be locked? The principle behind CIPFA’s advice is to give as much local flexibility as possible. Authority-wide treasury management policies mean the general fund could be affected by a large debt change. With interest rates and management costs probably affected, treasurers need to check the impact on the council tax payer.

Some good news for finance directors is that they can keep receipts from the sale of council houses, although 75% must be used for housing and regeneration.

Finance directors will want to watch any changes around the ring-fence rules. For years this has been a battleground between housing and finance staff.  Dividing costs between the general fund and the HRA has always been an art rather than a science. The government tried to clarify the issue with the much maligned Circular 8/95 and CIPFA attempted to help with the accounting codes of practice, but the final decision lies with the section 151 officer.

Earlier consultation suggested a tightening of this ‘ring-fence’ with ambiguity solved by a test of ‘who benefits?’. If services are provided for everyone, the costs should fall to the general fund. If the cost of a service is of wider benefit than solely to tenants or leaseholders of properties within the HRA, that cost should be divided between the HRA and the general fund according to a local agreement.

So finance directors with houses on their books need to be ready to respond to a government offer that is a ‘once-in-a-lifetime’ opportunity to free an important service from detailed central government control.  They will need to weigh up whether the offer, in the form of a debt adjustment, is one that they can live with.

The self-financing proposals mean that tenants will be able to clearly see the link between their rents and the services they receive for them.  Section 151 officers will be central to this, ensuring clear accountability in an account that will truly become a ‘landlord account’. We have been trying to do this since 1935 but repeated government tweaks to the system have made this impossible. Could 2010 be the year for a real change?

Now where’s that pencil sharpener?

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