End in sight for council housing finance deal

Like a certain Egyptian president, the despised Housing Revenue Account (HRA) subsidy system is a regime that has long outstayed its welcome. Now it’s finally getting its marching orders. Mark Cantrell reports...

The end is nigh. Regime change is in the air, but this isn’t Cairo so don’t worry overmuch– all the same there’s a hint of revolution, a promise of freedom and a new beginning. It’s that localism thing again claiming to be making a Mubarak out of Whitehall mandarins to set councils and communities free of central dictat.

This time, the breathless onward march of the Big Society heralds a brave new world for council housing, and it is one that has been a long time in coming, but this week the Government published its proposals and transitional programme for ending the Housing Revenue Account (HRA) subsidy system, setting out the arrangements for a self-financing approach to future funding.

For many of the HRA’s critics, the system effectively bled council housing dry over many years and contributed to it becoming something of the ‘Cinderella sector’ of social housing. Under the HRA regime, councils were required to surrender a proportion of their rental income and Right to Buy sales receipts to the Treasury.

The theory was reasonable enough; a redistributive principle that saw well-resourced councils assisting their less well-off peers via the centrally calculated subsidy system. In practice, however, it was deemed to be levelling down the better off stock-retaining councils rather than giving the weaker ones a ‘leg-up’ towards self-improvement.

As well as depleting the financial resources to provide for their services, it also left councils unable to plan for their long-term housing commitments – uncertainty and short-term thinking were essentially built in to the system.

That’s going to end, according to Housing Minister Grant Shapps, who announced on Tuesday 1 February the policy document ‘Implementing Self-Financing’ to a fanfare of localist talk. This is the “starting gun on a council housing revolution” that will set councils free to manage their housing stock over the long term by putting them in charge of their own locally-raised income streams.

“The deal brings an end to a centralised system which meant that councils didn’t know what funding they would get for housing from one year to the next and were unable to take key decisions about their housing stock. It prevented them from delivering the best possible services for their tenants in the most efficient way,” said Shapps.

“I am setting councils free to better meet the needs of their tenants. I am outlining these new freedoms as well as how each council’s opening financial position will be calculated. By giving them 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 house 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. And by putting councils in control and making the decisions they take more transparent, tenants and local tax payers will be better placed to hold their landlords to account.”

For the stock-retained councils that have lobbied long and hard for an end to the HRA albatross, any indication of the bird’s demise is a good thing, so naturally the self-financing proposals have been welcomed, but – as ever – the devil is in the details as one respondent pointed out. Much remains to be worked out before the final deal goes into effect in April 2012.

In essence, ‘Implementing Self-Financing’ is setting out the package for the settlement, as well as the interim regime that will be in place until the HRA is formally abolished next year, thereby fleshing out the HRA reform elements in the Localism Bill that is currently grinding its way through Parliament.
The financial settlement the Government is putting down on the table includes what it calls a one-off adjustment to each council’s housing debt, after which they will retain all the rental income they collect. Self-funding through the retention of local incomes is set to allow councils the ability to plan long-term and manage their responsibilities without having to apply for an affirming nod from Whitehall.

“The new self-financing approach puts councils firmly in control with the tools and incentives they need to manage their housing stock over the long term rather than on a year-by-year basis,” said the CLG.
An extra half billion quid a year is also to be made available for councils to spend on their housing stock, along with an extra £116 million to fund disabled adaptations to homes. In total, the funding for management, maintenance, repairs and adaptations under the new approach will be 14 per cent higher than under the existing subsidy system, the department adds.

The National Federation of ALMOs (NFA) said it was still assessing the details and wasn’t ready to comment, but the Association of Retained Council Housing (ARCH) has broadly welcomed the Government’s proposals. However, its members have expressed some concern about the debt aspect of the settlement. There is also some concern at the proposal that 75 per cent of Right to Buy receipts will have to be handed over to the Treasury.

“After years of campaigning for a fairer council housing finance system, ARCH is excited by the opportunity for greater local control. As always, the devil is in the detail and ARCH members will each be looking at how the deal stacks up for their particular communities,” said Councillor Milan Radulovic, of Broxtowe Borough Council, who serves as the association’s national chair.

John Bibby, Lincoln City Council’s director of housing and community services, and also secretary of ARCH, added: “ARCH has been campaigning vociferously for the reform of the Housing Revenue Account subsidy system and we are very pleased that the announcements made will enable its members to move forward with self-financing plans. [The association] is looking forward to dialogue between its members and government and hopes for a firm and final commitment to a fully workable settlement as soon as possible.”

He added that the association’s members are “concerned about the implications of re-opening the debt settlement for their authorities” and he asked that the circumstances under which debts would be reopened are “fully clarified”.

Radulovic added: “There is a level of debt at which authorities can make plans for the future and a level that is unsustainable.”

ARCH treasurer, Paul Price, head of housing services at Tendring District Council, said he was “delighted” to see that details of the level of debt and other arrangements had been set, adding: “Work will need to take place within each authority to calculate the impact, but this is certainly a step in the right direction.”

He was dismayed about the prospect of the Treasury taking the lion’s share of Right To Buy receipts. “We are dismayed at the news that 75 per cent of receipts from Right to Buy sales will have to be handed to the Treasury as we believe that it is critical that Right To Buy receipts are kept locally,” Price said. “It is totally contrary to the first principles of self-financing and flies in the face of localism that councils will not be able to fully manage their asset base to generate income to deliver improvements to existing stock and to assist in stock rationalisation. Whilst broadly welcoming the overall plans, we would call on the Government to rethink this element of the proposals.”

The Chartered Institute of Housing (CIH) noted that given the current financial pressures on the public sector, the Government has confirmed that some central controls will continue, but the organisation welcomed to the publication of the detailed proposals. The publication of ‘Implementing Self-Financing’ is a key aspect of the Government’s localism agenda, CIH said, and a “significant step on the path to reform”.

For the 160 authorities with council housing, the new system will mean the opportunity for the first time to develop a long-term and effective business plan for their housing, developed locally with local people, the organisation added. However, it expressed concerns around the setting of a cap on borrowing and the continued pooling of Right To Buy sales receipts.

“CIH has long argued that the current national HRA subsidy system is outdated, no longer fit for purpose and actively works against effective local management of council housing,” said chief executive Sarah Webb. “We look forward to next April when the system will be replaced by one based on more local choice and more financial control.”

Steve Partridge, the managing director of Consult CIH, urged local authorities to “get to grips with the detail as soon as possible”. He also urged the Government to “face up to the financial realities of the remaining disrepair backlogs” in many parts of the country.

“We have always put the case strongly that this should be a one-off settlement which would allow all authorities to meet the needs of their stock and the aspirations of their tenants for the long term, without the need to go back to government,” Partridge said. The viability of some plans will be affected by the combined controls over backlog funding and borrowing, and we need to work with government to ensure that all authorities have the means to deliver and maintain decent homes for all their tenants.”