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HRA ring fence: the need for scrutiny

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

In previous posts we welcomed the Government’s decision to implement John Healey’s proposals to reform council housing finance through ‘self-financing’.  We expressed a couple of doubts about the new proposals, notably that the Government had abandoned Labour’s plan to allow councils to retain all of their capital receipts from council house sales.

One other noteworthy distinction between the two sets of plans concerns the operation of the Housing Revenue Account ‘ring fence’ – ie the rules governing transfers between the HRA, which records income and expenditure on council housing, and the General Fund, which covers the rest of council spending. 

John Healey’s ‘Prospectus’ published a year ago showed the need for gradual reform of the way the ring fence operates to make the system fairer for tenants.  It showed that at least 40% of general management costs are incurred on what it defined as ‘non-core’ services, services that arguably should not be met from rents but from the general income of the council.  This one statistic makes a mockery of any accusation that tenants are ‘subsidised’.  Therefore, over time, it was proposed that non-core services should be regarded as services provided by the landlord but funded from sources other than rent.  The consultation showed virtually unanimous support for the continuation of the ring fence and the Prospectus proposed that new updated guidance should be issued.

In the Tory proposals ‘Implementing self-financing for council housing’ published in February 2011 the ring fence merits a single paragraph.  On the principle it accepts that the system should ensure 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’ – although that statement is open to several interpretations.  My concern is that it states ‘In line with our emphasis on localism we do not intend to issue new guidance on the operation of the ring-fence. We expect local authorities to take their own decisions, rooted in the principle that ‘who benefits pays’.’  The last guidance was issued in 1995 when council housing finance was very different from today.

Although the legal position will not change, the lack of guidance, the dilution of Labour’s plans for independent regulation of council housing, and the message the government is sending out that the operation of the ring fence is down to local discretion, combine to create a real danger for tenants.  Council Finance Directors and local politicians of all hues will look enviously at a fairly well-funded HRA and see opportunities to shift resources to help their beleaguered General Funds. 

The ring fence is easily breached and open to manipulation.  In one council I worked with, there were more than 60 types of transaction between the HRA and the General Fund.  These ranged from recharges for council overheads and democratic costs, to dozens of service level agreements with charges for items like central accountancy and HR, to procurement of office furniture, to rent for council premises.  Then there are age-old practices where council tenants are charged twice, as rent payers and as council tax payers, for a single service – for example paying towards general street lighting but also paying extra for lighting on estate roads. 

These charges have often been set historically with little challenge.  One of the many benefits of ALMOs was that the process of setting up the management agreement required recharges and SLAs to be identified and renegotiated, a process sharpened by the need to obtain 2 stars in the inspection, which led to better services and significant cost reductions.  My fear is that local discretion will reverse this progress and cost tenants dear over time.  The temptation will be just too great – and it will undermine the move towards council housing being run as a self-financed business within the council, with services paid for out of rents in a very transparent way.  The case for central guidance is strong.

Tenants have been vigilant on this in the past – witness the ‘Daylight Robbery’ campaign a few years back.  In future, detailed tenant scrutiny of the local arrangements will be essential, and well-informed campaigning tenants groups could make a real difference.