Government confirms final debt payments for Housing Revenue Account buyouts

Published by Jon Land for 24dash.com in Housing and also in Local Government

The Government has finalised the level of debt local authorities will have to pay to take control of their council housing rents, with the amounts lower than originally expected.

A total of 136 councils will have to make payments to the Treasury by March 28, with the London Borough of Wandsworth facing the largest bill of £433.6 million. However, this is less than the £435.9 million the council was expected to pay when the proposals were put out for consultation at the back end of last year.

The buyout is part of the Government's Housing Revenue Account (HRA), which currently pools all council house rents nationally and then redistributes them.

Under the changes, which were confirmed this week by Housing Minister Grant Shapps in a written statement to the House of Commons and apply from April 1, councils will retain their rents in exchange for taking on a proportion of the historic housing debt.

Local authorities that currently pay in more to the central pot than they receive have to pay to leave the HRA.

In the statement, Grant Shapps, said: "My Department is today publishing the final determinations which will deliver a Coalition Agreement commitment to replace the discredited Housing Revenue Account subsidy system. This will involve a £19 billion deal between central and local Government, delivering a new devolved system for financing council housing.

"Responses to our consultation show overwhelming support for our reforms. These reforms will give councils the resources, incentives and flexibility they need to provide high quality, efficient housing services for their communities.

"Under the current system, Government makes a series of complex calculations each year about how much it thinks each council should be able to raise in rents and how much it should need to spend on its housing services. On the basis of this desk exercise in Whitehall, Government takes money from some councils and gives money to others.

"In recent years, this has produced a national surplus for Government, currently forecast to be around £670 million in 2011-12. This so-called 'tenant tax' would continue to grow each year under the current formula. Local authorities do not know from one year to the next how much they will gain or lose from this redistribution, making it hard for them to plan ahead.

"Under the new system, councils will keep all their rent income and use it locally to fund their own homes. This will give councils the stability they need to develop long term business plans with the most efficient local mix of maintenance, repairs and replacement works. Instead of waiting to see what turns up in the annual subsidy round, councils will take responsibility for their homes. This will enable and encourage active local asset management to meet the future housing needs of communities.

"Alongside this freedom from central control, councils will have more money to spend on their homes. The reforms do not change the rent policy established by the previous Government in 2001. But the new system deals with the chronic under-funding for capital works under the subsidy system which led to the huge backlog in Decent Homes works.

"The stock valuations on which the new system is based include higher assumed costs for management, maintenance and repairs, based on independent research. This will give councils on average 15 percent more to spend on services for tenants."

The Chartered Institute of Public Finance and Accountancy (CIPFA) said it welcomed the publication of the final debt determination for the HRA. Councils now know how much debt they will take on when the new arrangements come into effect and CIPFA is urging local authorities to ensure that they are prepared.

The Government has made it clear that it is not its intention to be prescriptive about how authorities should manage their business plans. According to CIPFA, this absence of formal guidance and regulation, whilst welcomed by many, does leave authorities exposed to all of the risks associated with such an extensive and radical change.

Alison Scott, CIPFA Assistant Director for Local Government, said: “Everything is now in place for the start of self-financing at the end of March. This is a massive change for local authority housing and offers a unique opportunity for authorities to develop financial strategies to meet the future housing needs of tenants and communities.”

The determinations are available at:

http://www.communities.gov.uk/documents/housing/pdf/2077606.pdf