The Housing Revenue Account

Overview

The Council is required by the Local Government and Housing Act 1989 (section 74) to keep a Housing Revenue Account (HRA) which records all revenue expenditure and income relating to the provision of council dwellings and related services. The use of this account is heavily prescribed by statute and the Council is not allowed to fund any expenditure for non-housing related services from this account.

At 31 March 2009 the Council had 3,126 dwellings, including shared ownership dwellings.  This is projected to decrease to 3,103 at 31 March 2010. The number of Right to Buy sales over the past year has fallen due to the current economic market and is expected to continue to drop. The reduction to anticipated housing stock in 2010 takes into account the loss of units due to the Newington Development. Although the Council’s housing stock has reduced by approximately 10% over the past 5 years it still has management responsibilities for flats sold under a long lease. In the future it is intended that the reduction in dwellings will be compensated for by the provision of new housing stock that will be planned for through Housing Associations within the District.

The HRA 30 Year Business Plan

The HRA Business Plan is in the process of being reviewed and updated. The current business plan clearly indicates that the Council can maintain its properties to the Decent Homes Standard for the full 30 years of the plan (which runs to 2036).  It anticipates a revenue deficit after 2013, although the latest estimates indicate that this in not now likely to happen for a number of years later. 

To extend the financial viability of the HRA Business Plan it is proposed to establish a shared service organisation to manage the council housing of all of the East Kent Local authorities. Each council would continue to determine its own HRA Business Plan and its stock investment priorities. The annual planned maintenance budgets would also continue to be determined by each council as part of its existing constitutional and budget processes. However, the feasibility study for this proposal has identified that significant savings could be achieved as a result of merging the services. By pooling resources, the councils will also be able to develop greater expertise in specialist areas like HRA accounting, asset management, community development and housing and tenancy law. The proposal of the establishment of a shared services vehicle has been agreed in principle by this Council and work is progressing to get the buy-in and involvement from each council with the aim of moving the project forward to an implementation date of 2010.   

Changes to Relevant Legislation

Currently the Government is reviewing the HRA Subsidy System. It is proposing to allow local housing authorities to opt out of the HRA Subsidy System, provided they can become self-financing from rental income and other direct service charges. The implications of this will be reviewed as part of the new Business Plan, which will form the basis of the HRA elements of the next Medium Term Financial Plan.

Changes to legislation also provide new opportunities for councils to develop new affordable housing outside of the HRA subsidy system. This means that councils can compete with Registered Social Housing Landlords (RSLs) to receive government grants to build new homes, allowing councils to:

• Use HRA assets to build new homes rather than gifting or selling assets to RSLs;
• Undertake regeneration schemes to make better use of unpopular or inappropriate housing stock;
• Generate income from the management of the new homes to bolster income on the HRA and thereby extending viability of a stock retention policy. 

In November 2008, Cabinet approved the establishment of a Local Housing Company for Thanet to develop new council homes on HRA land and other land that could be acquired.

Developing the Three-Year Housing Revenue Account

The Housing Revenue Account Budget Strategy

The main strategic objectives of the Housing Revenue Account, which provide the underlying principles for financial planning are summarised in the box below.  This strategy accords with the current HRA 30 Year Business Plan and has been used as the basis on which this Medium Term Financial Plan has been developed.

The Council’s Housing Revenue Account Strategy is:

• To maintain a Housing Revenue Account that is self-financing and reflects both the requirements of residents and the strategic visions and priorities of the Council.
• To achieve the Government’s “target” rent level by the rent convergence date.
• That the major repairs allowance, current borrowing consent and available rental income is directed to sustain the maintenance and improvement programme required to achieve the Decent Homes Standard by 2010.
• To maximise the recovery of rental incomes by reducing the number of void properties and minimising the level of rent arrears and debt write offs.
• To maintain a minimum level of HRA reserves of £800k but with a target level of reserves of £1m.

As with the General Fund Revenue Account, the HRA budget is arrived at after the consideration of inflationary increases; growth in expenditure arising from service led demands and other pressures; reductions in expenditure through the realisation of efficiencies; and changes in income through rent increases and the impact of the sale of council houses. 

Budgetary Growth

Inflationary Increases

The HRA is charged with costs that relate to the day-to-day maintenance of the Council’s housing stock, which includes supplies and services on improvement and repairs to the buildings, as well as the cost of council employees that are involved in the management of the housing function. 

In line with the budget assumptions for the General Fund Revenue Account, growth has been factored in for an annual cost of living rise of 1% for each year from 2010/11 to 2012/13 (but with the award date set at 1 October in the first two years, rather than the traditional April), followed by 2% for each year thereafter. Inflation has been provided for only where it is contractual or has been previously notified e.g. utilities.

Budget Reductions

Efficiency Savings

From April 2010, Thanet and Canterbury are moving towards a joint procurement contract for repairs and maintenance. It is anticipated that this new contract will produce a saving to the HRA of approximately £310k. 

Although it is too early to reflect in this plan, the Council’s proposal of entering into a shared services vehicle for the management of the council housing of all of the East Kent Local authorities would be expected to bring significant improvements in value for money and could also potentially deliver substantial financial savings in the medium to long term. 

The Council will continue to explore all options to improve efficiencies. With the planned revision of the 30 year HRA Business Plan, more firm projections on future efficiency savings will be able to be made in the next Medium Term Financial Plan.

Increased Income

The Council receives income from a variety of sources in respect of its council houses, including that raised from rents and from service charges to residents of flats for communal services in order to recover its costs.

Service Charges

It is proposed that there will be no increase to the current unpooled service charges and they will continue to remain at the same level as 2009/10. Heating service charges will be calculated based on actual cost.

Rents

In 2002/03, the first year of rent restructuring, a uniform rent increase of 2.5% was applied to all properties, which was acceptable under Government guidance. Subsequently rents have been increased each year in line with inflationary rates determined by the Government.  In order to establish some stability and predictability the Government has decided to adopt a fixed 3.1% increase in guideline rents.  With RPI indicators being negative, the way in which government have determined this is by reducing the convergence date for rent restructuring to 2013/14.

The MTFP also includes an increase of 3.1% for garage rents.

HRA Investment Income

This consists of interest accruing on mortgages granted in respect of Right to Buy sales and interest on HRA balances. The base rate has fallen significantly. The budget for 2010/11 is based on an interest rate of 0.5%. It is anticipated that interest rates will rise to 1.5% in 2011/12 and 2% for the years thereafter. This is based on projections from the Council’s treasury advisers

The Housing Revenue Account Subsidy

The Government pays local housing authorities a housing subsidy to cover any shortfall between notional expenditure and income on the HRA, although where there is a surplus the Government recovers this by way of a negative subsidy.  The MTFP assumes that Thanet will have a negative subsidy over the next five years which will need to be paid over to the Government. 

HRA Reserves

The Council keeps two HRA specific reserves that are allowable under statute; the HRA Balance Reserve and the HRA Major Repairs Reserve.  These are explained in more detail below.

Housing Revenue Account Major Repairs Reserve

Within the HRA Subsidy is a Major Repairs Allowance (MRA) that reflects the need to replace building components as they wear out.  The Council is required to place this MRA into a Major Repairs Reserve until it is needed to fund HRA capital projects.   This funding has enabled the Council to maintain the housing stock in a good condition and as a result it is likely to be able to meet the target to deliver decent homes to all social sector tenants by 2010 that was part of the first Public Service Agreement.  This Medium Term Financial Plan allows for increases in the MRA due to inflation which are partially offset due to changes in stock each year and assumes that the MRA will be fully utilised every year over the medium term.

Housing Revenue Account Balance Reserve

This reserve holds the balance on the HRA and is used to draw down to balance the revenue budget or pay revenue contributions to the Capital Programme to smooth any peeks and troughs within the 30 year business plan. It is maintained by annual contributions from the HRA.

The Medium Term HRA Budget Requirements

The changes that are outlined in the paragraphs above have been applied to the existing budget for the Housing Revenue Account and the resulting financial projections for the HRA over the next five years are summarised in Table 11:

Table 11

The Medium Term Housing Revenue Account Budget 2010 - 2015

Next: Capital Programme

Back:  General Fund Revenue Account

• Introduction
• Executive Summary
• Local Government Finance Environment
• Local Government Act 2007
• Value for Money
• The Local Context
• Developing Financial Plans
• General Fund Revenue Account
• Housing Revenue Account
• Capital Programme
• Treasury Management

Financial Services

E-mail:

accountancy@
thanet.gov.uk

Tel: 01843 577000