Follow the money

11 Dec 13
Council raids on housing revenue accounts should stop with the closure of a 'legal loophole'. The name of the game now is self-regulation

By Lesley Lodge | 11 December 2013

Council raids on housing revenue accounts should stop with the closure of a 'legal loophole'. The name of the game now is self-regulation

Council house_Alamy

Ken Lee’s opinion piece (Hijacking the HRA, publicfinance.co.uk, 25 September) set out clearly and forcefully the reasons why councils should not take advantage of a perceived loophole in legislation regarding the Housing Revenue Account to transfer monies from the HRA into the general fund. Nevertheless, recent reports suggest at least four councils did switch large sums – said to amount to some £35m. 

The 'legal loophole' arose from an interpretation of a statement in the Local Government and Housing Act 1989. This said that ‘a local housing authority to whom no Housing Revenue Account (HRA) subsidy is payable for any year may carry the whole or part of any credit balance shown in their Housing Revenue Account for that year to the credit of some other revenue account of theirs’. The logic was that since the subsidy system is no more, after the introduction of self-financing last year, most authorities will have had no subsidy payments in 2012/13 and therefore could legally transfer HRA monies to general funds.

The loophole closed on 1 October with an amendment to the Local Government and Housing Act 1989 that makes clear the statement allowing transfers now applies only to Wales, which still has a housing subsidy system. 

The Department for Communities and Local Government is said to be 'looking into' whether transfers that relied on the loophole were appropriate. For years, though, in the lead-up to self-financing, councils argued strongly for self-determination. Now, self-regulation is the name of the game and it should be up to each council to decide such questions responsibly – if a return to central regulation is to be avoided.

Happily, there are two new publications aimed at arming councils with the principles of self-regulation. The Local Government Association recently published its Good Practice Principles to support the Self-Financed Housing Revenue Account and CIPFA and the Chartered Institute of Housing have jointly published the (free to download) Voluntary Code for the Self-Financed HRA

The impetus behind attempts to transfer sums to the general fund is obvious as the catalogue of cuts, rising costs and increased demand pressures continues, for example on adult social care. But the self-financing settlement was thoroughly consulted on, debated and calculated in the context of authorities’ housing needs and housing debt. Significant additional pressures have hit HRAs since self-financing began: 

● Right To Buy has been reinvigorated with recent government figures showing a doubling in demand and more than 10,000 RTB sales resulting. 

● It’s increasingly obvious that the impact of welfare reforms, taken together, will be untold extra millions as arrears and bad debts rise.

The government's recent decision to drop rent convergence will push rental income forecasts down. 

As Lee pointed out, raids on the HRA were clearly not what was intended and could be considered ‘morally wrong’ as the monies are intended for expenditure that benefits tenants. The point of the ring-fence has always been to preclude cross-subsidisation (in either direction) between the HRA and the general fund. 

While the so-called loophole is now closed, the government has said there will be no easing of austerity measures for some years – so pressures on the general fund are not going to let up and temptations to transfer funds into it will remain. Section 151 officers and finance staff will want to look carefully at any future transfer proposals. 

Under self-financing, the business plan is a key document, far more so than the old HRA business plan ever was. The focus now should be on affordability and priorities over the much longer 30-year period – not the very short question of whether there was a positive balance in, say, the last week of October 2013. 

In determining whether expenditure should be applied properly to the HRA or to the general fund, the test should still begin with ‘who benefits – council tenants or general council tax payers?’ If the general fund is bearing the expense of some resource used predominantly by HRA tenants there may be grounds for a transfer – though sometimes a thorough check may throw up a possible need for transfers in the opposite direction. 

The business plan now – far more than previously – requires frequent and thorough reviews. All charging between the HRA and the general fund should have a transparent method of calculation that stands up to the test of ‘who benefits?’. 


Lesley Lodge is CIPFA's finance & policy manager for local government CIPFA's HRA self-financing performance toolkit is now available


This opinion piece was first published in the December edition of Public Finance magazine



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