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Back Office: Now for the hard bit
Published 04 September 2023
If the HRA is to be dismantled, some serious compromises will be needed.
It’s easier said than done. But the welcome government plan to dismantle the hugely complex Housing Revenue Account (HRA) system is do-able so long as there’s a willingness to compromise – including from the Treasury.
Formidable issues remain to be tackled. At present, two-thirds of debt-free/low-debt councils help to fund borrowings of high-debt councils, some with debts averaging as much as £30,000 per home.
To dismantle the HRA system, its outstanding housing debts will need to be refinanced in one way or another.
There are two key options. The HRA debt can be shared out among individual authorities so that each council knows its year-on-year funding cost. Or it can be centralised at the Treasury in a way that the year-on-year funding requirement for each authority can also be established.
A good compromise would be to centralise the debt at the Treasury and provide individual authorities with the option of taking on their share of the debt. With good will, it’s worth the trouble. After all, once the HRA is abolished, councils will gain control of housing again and get back into building much-needed new homes.
The most contentious issue is working out the exact amount of HRA debt to be refinanced. That should be a simple matter, but isn’t, because the HRA is a revenue-only account without a balance sheet, so there is no public accountability of individual council’s housing debts.
There is a variety of figures for the real level of debt relating to today’s 1.8 million council homes. In 2001, it is generally agreed, the actual, identifiable HRA debt was £10 billion, an average of only £4,500 per home.
There’s general agreement, too, that the actual HRA debt has now increased to £15 billion, or nearly £7,000 per home.
The main reason for the £5 billion increase was Treasury chicanery in changing the rules on councils’ right to buy receipts. For years, 75 per cent of the receipts had to be set aside to redeem housing debt, which is why the average debt per home had dropped to less than £5,000 by 2001. In 2004, the Treasury changed the rules so it could siphon off right to buy receipts to provide £4.5 billion social housing grant funding for housing associations.
Not surprisingly, councils are arguing that they should not be lumbered with £4.5 billion extra debt because of the Treasury’s dirty-dealing and that the actual HRA debt to be sorted out should really be about £10 billion.
While councils may believe the actual HRA debt to be refinanced is £10 billion, the Treasury has in mind a very different figure of £18 billion, or £10,000 a unit, for the outstanding HRA debt. This figure is calculated on a ‘notional’ basis in the same way that the HRA has operated for more than 20 years.
‘Farcically, several councils are ascribed ‘notional HRA debt’ when they haven’t any actual HRA debt on their books at all’
The monumental edifice works on a myriad of assumptions about such things as management costs, major repairs, rents and debt levels and these assumptions are not related in any way to the actual figures of individual councils.
Farcically, several councils are ascribed ‘notional HRA debt’ when they haven’t any actual HRA debt on their books at all.
Inevitably, then, there’s going to be heated argument between councils and the Treasury. Councils are going to say the maximum HRA debt to be refinanced is £10 billion, struck after writing back the £4.5 billion siphoned off (some would say ‘stolen’) for social housing grant funding.
But the Treasury is going to say that the £18 billion ‘notional’ debt is the real figure for outstanding council housing loans. So if the HRA system is to be dismantled, a lot of compromises are plainly going to be needed.
Sebastian Taylor is a journalist.
