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Ian Doolittle looks at the Government's new plans for the future of the housing revenue account. Council finance officers have been waiting a long time for a reform of council housing finance. However, it's one thing to recognise that the Housing Revenue Account (HRA) subsidy system is complex and unfair, and another to replace it with an acceptable alternative. The last housing minister likened the issue to the poll tax. Reform seemed dead. But Margaret Beckett's successor, John Healey, has grasped the nettle, and we now have a consultation paper proposing what the Government describes as ‘a radical dismantling' of the HRA subsidy system and its replacement with a ‘devolved system of responsibility and funding'. This is a welcome message. Councils, of course, will be wary of headline politics, and they will note that primary legislation is likely to be required. But the consultation paper still deserves close reading by those 200-plus authorities which still have HRAs. Council housing is a key political issue for members. Tenants have been pushing hard for reform for many years, and they will expect their politicians to take full advantage. The first step will be to respond to the consultation process. What, then, is proposed? At the centre of the new system is re-allocated debt. Many of the difficulties inherent in the current arrangements derive from the need to service the substantial debts of certain housing authorities. Those authorities which are paying into the HRA subsidy system – euphemistically described as being ‘in negative subsidy' – are doing so not simply to support housing needs in other areas but also to pay for those debts. This, naturally, causes resentment. On the other hand, those authorities which receive support from the system – ‘in positive subsidy' – cannot afford otherwise to service their housing debt. The Government could have decided to write off those debts in their entirety – as the Local Government Association urged – but it baulked at the £18bn ‘cost' of doing so, and it is proposing instead to re-allocate the debt to all housing authorities on the basis of their ability to pay for it through the surpluses on their individual HRAs. This is sensible from a national perspective, but the Government acknowledges that it will be ‘contentious' for authorities with little or no debt. Those authorities will derive little comfort from the fact that they are already paying for this debt through the subsidy system. The fate of the reform plans will hinge on whether this discomfort translates into concerted opposition. The consultation paper describes how the individual debt settlements for each housing authority could be achieved. A 30-year business plan would be produced, comprising investment needs – based on common standards – on the one hand, and government-derived rent levels on the other. The resulting stock valuation would determine how much debt is allocated to the authority. Various accounting and Treasury management issues are explored in the consultation paper, and council finance officers will appreciate the complexities which lie ahead. But the principles are clear. There will be a wide welcome for the reform. Councils will relish the chance to run their own HRAs, free of the uncertainties of annual subsidy determinations. Finance officers will back themselves to out-perform their new business plan. But they will be looking hard at the rewards on offer. There will still be government ‘rules' constraining how they run their ‘businesses', not least rent control. Keeping rents and receipts within the authority is attractive, but what additional investment can be achieved as a result? The consultation paper makes it clear that the Treasury will be wary of authorities using their prudential borrowing powers to raise significant loans against their rents. There is also an unnerving reference to the possibility of revisiting debt settlements if government policy changes dictate. And what of the risks to be set against these arguably-limited rewards? One of the features of the current system is that it protects debt-paying authorities from interest rate movements. This protection would no longer be available under self-financing. Is this new risk a price worth paying for freedom? It may well be, but this will be one of the many questions finance officers will be asking of the council housing finance reform plans over coming months. Ian Doolittle is partner and head of public sector – communities and governance at Trowers & Hamlins LLP

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FINANCE

Council housing finance reform – rewards and risks

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