Council housing: a real future

A new self financing system for council housing is on the cards. Alan Aisbett looks at the detailed plans.

The current system for financing Council Housing dates back to the 1930's. It involves the re-distribution of surpluses on individual local authority Housing Revenue Accounts (HRA) to those other local authorities incurring a deficit. It is underpinned by notional allowances for rents and finance, management and maintenance costs which takes no account of actual borrowing, income and expenditure and of whether some authorities are more efficient than others. It also largely provides a constraint on investment.

Following on from the consultation document Reform of Council Housing Finance published in July 2009, which examined the option to dismantle the current HRA subsidy system and replace it with a devolved self financing system, the Government has now published a further consultation document Council Housing: A Real Future (Prospectus) which sets out detailed plans for a new self financing system.

The new system will be created by a once and for all new settlement between central and local government. In exchange for a one-off allocation of debt between local authorities, central government will stop the annual distribution of rental income. The new system will also include additional "headroom" to enable local authorities, after having met the needs of existing stock, to deliver a new build programme.

The intention of the self financing regime is to put local authorities in a position where they can manage and maintain their own homes from income. There are various aspects to this which are explained in the Prospectus and set out below.

The only income assumed in the self financing valuation model is income from rents. Under self financing, local authorities will be required to follow a national social rent policy, i.e. rent convergence. Income from service charges will not be included in the self financing valuation.

Research undertaken on behalf of the Department for Communities and Local Government has suggested a need for uplifts on management and maintenance and major repairs (5% and 24% respectively). These uplifts will be included within the reforms.

There will be some technical changes around Housing PFI schemes as a consequence of self financing. Currently local authorities with a signed HRA PFI scheme receive a fixed annual subsidy (with no inflationary impact) for the length of the contract. The subsidy is paid within the HRA subsidy system. The local authority continues to receive management and maintenance allowances for the properties within the PFI but does not receive MRA for this. Under the new regime, signed schemes will be included in the calculation of the self financing settlement by including the annual subsidy payments as costs.  For schemes due to sign after self financing, no costs will be included within the self financing model and DCLG will pay PFI subsidy.

In relation to the Decent Homes Programme, self financing will enable landlords to maintain their existing stock from their own resources. The Government has agreed to examine funding of the outstanding decent homes work in the next comprehensive Spending Review.

The Prospectus proposes the ending of pooling of capital receipts provided 75% of those receipts are used for affordable housing and regeneration projects. The remaining 25% can be used for any capital purpose.

The self financing model indicates a sustainable level of opening debt for each local authority based on the above assumptions about income and expenditure. Local authorities who need to borrow to make a payment to Government under self financing will all face similar costs for their borrowing.

Alan Aisbett is a partner at Pinsent Masons. He can be contacted on 0121 626 5742 or via This email address is being protected from spambots. You need JavaScript enabled to view it..