Don’t bet the house on an end to complex council finance

Councils who have long called for an end to the fiendishly complex system that takes money from their housing departments payments to fund them elsewhere are getting closer to their goal.

The Government today ‘fired the starting gun’ on its proposals to end the controversial Housing Revenue Account (HRA) system by publishing details of how it intends to do it.

I’ve tried for years to get my head around council housing finance and explain it in an accessible way. The simplest way to describe how the HRA works is: all councils who own their own housing are expected to send a proportion of their rental income to central government, generating more than £28bn in total. The government then redistributes this money to councils in other parts of the country, but keeps around £6.7bn of it also. On a local level, it’s a policy that’s often portrayed as unfair to authorities who are already struggling to maintain their housing (and are not helped by the fact that it is illegal for their HRA accounts to go into the red).

On transfer consultations I have worked on, this is an issue that tenants have understood only too well: when they are told their rent subsidises housing in other parts of the country, they often vote for an end to this by transferring the ownership of their homes to a social landlord (which are not covered by the same rules). In some cases, I have known the amount given by a council to Westminster to be as much as 33p for every £1 it takes in rent. Opponents of transfer have argued that this stacks the odds against council landlords. In many ways, the policy is localism in reverse.

So, the Government is understandably describing this proposal as an integral part of its Localism Bill, which is currently before Parliament.

Whatever happens, I would not expect an end to the confusing world of council housing finance just yet. For a start, many councils who have battled this problem for years have given up the ghost and transferred ownership and management of the homes to a social landlord. This move will not affect them.

Then there are ‘arms length management organisations’, who manage the improvements on behalf of home-owning councils. Some are having to revisit plans to finance improvements before the new system kicks in, in 2012.

The HCA, which is responsible for delivering funding for Decent Homes improvements, is working closely with these bodies to ensure they are aware of the implications of the proposed changes.

But if the end result is a simpler system that allows councils to fund the improvements their tenants’ homes deserve, then that’s something to welcome.

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