It has been a long time coming, but the end of the national HRA (housing revenue account) subsidy system for council housing is now in sight. A new government paper Self financing: Planning the transition clarifies some of the detail, updates the figures that will be used, and crucially sets the timetable for implementation – 28 March 2012 will be the day on which many billions of pounds will move around between CLG, the Public Works Loans Board and individual local authorities to implement the scheme.
Although the technicality of the new paper will give anyone except a public finance accountant and a few experts a headache, the core proposals are still much the same as
proposed by the Labour Government. Radical change has been made possible due to the fact that the council housing system as a whole has moved into significant surplus, surpluses that are projected to grow in future.
The current system involves central government notionally collecting all rents and
redistributing the income between councils with housing stock according to
increasingly complex formulae. The system has become unsustainable, with some councils losing 50% of their rent income to the national pool, and volatile, with annual determinations making longer term planning very difficult. The central problem was the bad distribution of historic debt – councils that have built most in the past had large debts they couldn’t sustain from local rent income. The new system redistributes the debt permanently between councils, according to their ability to support it within 30 year business plans, removing the need for annual redistribution.
‘Self-financing’, as it is called in the jargon, is a genuinely localist move, supported by all
of the political parties and by the vast majority of councils with stock. It is a major success for the housing lobby, and especially CIH, who have argued for this change for many years to give council housing a sustainable future and to bring key decisions over finance and services closer to tenants.
Of course there are still risks and there are elements of the package that could be improved. There may be dangers in the detail of the redistribution formula that I wouldn’t be able to spot with binoculars, but some others will. One change made by the current government has been to retain the rule that 75% of capital receipts from the right to buy will go to central government rather than stay locally as Labour had decided. They also imposed a cap on borrowing, limiting the scope for councils to use their surpluses to build new homes, and spiking the ambitions of some councils to become major builders again.
The funding arrangements to complete the decent homes programme also do not seem to be adequate for the job.
It must be said that there are dangers as well as opportunities arising from local control of the housing revenue account. The ring fence is retained but, given that the general fund at most councils is under severe strain, some Directors of Finance and politicians will look avariciously at the HRA and seek to move funds across.
Tenants will need to be vigilant and alert to the many tricks of the trade, and scrutinise carefully all arrangements such as recharging of overheads and central council costs and service level agreements. If council housing is to be a self-financing business in future, the core principle must be that rent income is used for the benefit of tenants and not
council taxpayers generally.
The long-predicted total demise of council housing has been averted. Campaigning tenants and a few councils who were determined to hold on to their stock can take much of the credit for that. Councils with stock should now be able to adopt a sustainable business plan for the future, making decisions locally, with their tenants, to improve their management and performance. Some councils are building again, admittedly in small numbers, and more have the potential to do so.
Given the politics of council housing over the last 30 years, this is a good result.
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