Magazine article Public Finance

Taking Stock of HRA

Magazine article Public Finance

Taking Stock of HRA

Article excerpt

it is a year since local authorities gained control of their Housing Revenue Accounts, moving from the centralised pooling system to keeping their own rents. So what has happened since then and what still needs to be done?

Much of the work before April 12012 concentrated on the one-off payments made to and from councils as the historic national housing debt was distributed among them as part of the arrangements. Most councils making payments to the Department for Communities and Local Government had to take on equivalent additional borrowing to cover this - but the £13bn worth of transactions eventually went through without a hitch.

Given the work involved, it is not surprising that since then housing and finance colleagues have taken some breathing space to allow the new system to bed in. Feedback suggests that few councils are currently intending to borrow more to spend on housing at this stage. This is partly to do with the debt profile, which peaks after the first few years of the transfer. But it is also because of the housing borrowing caps set by the government, particularly as there is uncertainty over changes to welfare payments and the ability to use receipts from tenants' right to buy.

CIPFA argued throughout the lead-up to self-financingthat the debt cap was unnecessary, and behaviour during this initial year supports that view. Removal of the cap would allow housing authorities to choose the most cost- effective capital/revenue expenditure splits as their business and capital plans improve along with their understanding and experience of self-financing.

A side effect of self-financing has been to put HRA accounting under the spotlight. The intensity of this spotlight has been increased by the ending of the Major Repairs Allowance, which the previous government set up to charge to the HRA revenue budget for capital assets. The decision was taken to move the HRA toward full depreciation accounting following CIPFA's research on the impact of valuation methodology and componentisation in pilot authorities. This work suggested that where componentisation and asset lives accurately reflected asset management assumptions, sensible charges could be achieved, provided that the asset management plan itself was affordable.

There were two key concerns. The first was about authorities still using the MRA as a proxy for depreciation and the second was the impact of revaluations and, more importantly, impairments. …

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