Systematic raiding of housing revenue accounts

When seven local authorities raided £40 million from their housing budgets through a legal loophole last year, they faced flak from housing professionals and the government alike.

Each housing revenue account was ‘ring-fenced’ for a reason, the shamed few were reminded: the HRA was protected by law so rents and benefits are used only to keep council homes in good nick.

But are HRA raids really a minority sport? An investigation by Inside Housing has found out town halls across England are quietly disinvesting on a much larger scale.

As local authorities buckle under the weight of Treasury cuts, assaults on HRAs have become widespread, choking resources for essential repairs. Experts with sight of our findings warn of a return to the bad old days of insidious neglect that led to the £19 billion repairs backlog of the 1990s and ended with rotten estates, good only for wrecking machines.

Our analysis of 115 councils’ financial data suggests that one in five raided their HRAs last year by hiking up internal ‘service charges’ at inflation-busting rates of 10 per cent and above. Eight pushed up charges by more than 20 per cent. The average increase was 4.1 per cent.

These internal charges are for day-to-day services provided by other council departments to their landlord function, such as human resources, legal and financial support. And increasing them disproportionately is the chief means of pulling resources through the ring fence. Such moves are often opaque to all but experts in this ‘grey area’ of council finance. No legal loopholes required.

Long-term leaks
Unlike loopholes, these raids are not one-offs; they could be locked into the life of the HRAs’ 30-year business plans. Applied annually, extra costs accumulate quickly, rising last year by 12 per cent on average for the 63 councils which increased bills. With 28 years left to run, these authorities’ housing budgets could be left with a £4.8 billion hole if their charges continue to rise at current rates.

The largest draws came from Barking & Dagenham, Leeds and Basildon councils which hiked charges by £7.5 million, £3.2 million and £1.4 million respectively. And with no end in sight for local government cuts, the architects of the two-year-old ‘self-funding’ HRA are seriously concerned by these findings.

The April 2012 government deal that split the single Whitehall-controlled ‘subsidy system’ for England into some 170 council-run HRAs, included ‘just enough’ resource for each authority to keep homes up to scratch, according to Ken Lee, chair of the housing panel at the Chartered Institute of Public Finance Professionals.

‘When extra costs are “allowed” over management costs, there is a distinct danger that the properties will not be able to be maintained properly,’ he adds.

And while authorities can increase cash flows by making better use of their considerable HRA assets, these raids still ‘spell some danger’ for council homes, Mr Lee says.

‘It goes against the spirit of what we tried to achieve,’ he adds. ‘We wanted local authorities to have freedoms to look after their social housing - but are they starting to show they cannot be trusted?’

Steve Partridge, a housing consultant who also played a key role in the 2012 deal, says service charge hikes are particularly ‘inappropriate’ when employed to prop up councils’ central back-office services like IT, human resources and finance.

While tenants might support increases to keep services like neighbourhood wardens on patrol, they would be unhappy about paying more in order to maintain staff levels in corporate departments, he says.

‘Back-office services are not being cut back as they should be,’ Mr Partridge adds. ‘They are being protected by costs dumped on the HRA. This just defers when services have to sort themselves out.’

Back-office services
Inside Housing’s investigation identifies several instances of service charge increases for back-office costs.

Doncaster Council, which hiked internal charges by 29 per cent over the past two years from £2.1 million in 2011/12 to £2.7 million in 2013/14 describes its increase as largely due to ‘recalculation of the corporate and democratic core recharges’ - bywords for back-office services. Its spending on housing repairs fell 28 per cent over the same period, due to ‘more efficient working methods’ which a spokesperson says has not reduced its ‘service offer to tenants’.

One of the most surprising and biggest raids was by Basildon Council. Despite taking its arm’s-length management organisation back in-house in 2011 to ‘make major savings’, the Essex authority boosted service charges from £7 million in 2011/12 to £9.6 million in 2013/14 - a hike of 37 per cent over two years.

A spokesperson says service charges are shown to tenants. Its decision to take the ALMO back in-house was a direct result of 52 per cent cuts to the council’s budget, he adds.

These hikes in back-office charges are not the sole way to raid HRAs. Other raids involve bills for services which were previously paid for in full or in part by general funds.

Brent Council has agreed to bill its HRA £145,000 for collecting refuse on council estates as part of a contract retender, issued in 2013. Eamonn McCarroll, director of finance at the west London borough says the extra money will pay for the disposal of waste ‘illegally dumped and strewn across council housing estates’ and clearing rubbish from vacated homes.

Mr McCarroll rejects suggestions that tenants are double charged for ‘regular waste disposal’, which is funded through council tax. ‘Tenants can also make use of the bulk waste collection service,’ he adds.

Another common way for councils to tap their housing budgets is by increasing their contributions to services where costs are split or ‘apportioned’ between HRAs and general funds.

Leeds Council last year began billing its HRA an extra £1.8 million a year for Supporting People, a centrally funded programme that helps vulnerable people maintain their tenancies. Council papers say the increase reflects a more ‘appropriate apportionment’ of costs.

The city authority also increased internal charges by £250,000 to improve the ‘environment and cleanliness’ of estates by providing more regularly emptied litter bins and £300,000 for maintaining ‘landscaping and recreation areas’.

A further £646,000 cost was loaded onto its HRA after it transferred ‘horticultural maintenance’ from its now-defunct ALMO to its internal ‘parks and countryside’ department. This extra burden reflected ‘a more accurate apportionment’ of costs and ‘enhancements to horticultural maintenance standards’, a spokesperson says.

Like Basildon, Leeds says its ALMO was closed to cut costs and last year claimed to have saved up to £2.4 million. In total, Leeds took £3.2 million from its HRA by increasing charges, making it the second largest raider.
A spokesperson for the council says: ‘Leeds Council has carefully managed the HRA and provided extra resources by bringing the previous ALMO back in-house.’

Flipping liberty
Two more strategies are identified by Inside Housing’s investigation. The first involves flipping properties onto the HRA from the general fund. In the second, councils impose inflated interest rates on loans held on their HRAs, reaping multi-million pound incomes for general funds.

Both methods are employed by Portsmouth Council, which has flipped car parks, community centres, libraries and children’s homes onto its HRA over the past two years. Transferring maintenance costs for these ‘assets’ onto housing, will help Portsmouth cut £9.1 million from its general fund costs over the next three years.

Transfers of this kind are not just drains on resources for day-to-day repairs, however. They also slash the already limited borrowing capacity councils have in their HRAs to fund much-needed new housing. A decision this year by Portsmouth to flip £17.5 million of property - including libraries, children’s homes and car parks - into its HRA corresponds to a 60 per cent drop in its HRA borrowing capacity, from £36.4 million in 2013/14 to just £15.1 million in 2014/15, Inside Housing’s analysis shows.

The city’s own papers warned the transfer would have a ‘significant effect’ on its borrowing power. A council spokesperson says its 24 per cent funding cut had ‘encouraged’ the city to ‘update historic assumptions and procedures’.

‘This may have impacted on recharges to the HRA,’ he adds.

A final assault on HRAs is perhaps the most opaque. Figures obtained under a freedom of information request indicate that Portsmouth applies inflated interest rates to an £88.6 million government loan to its HRA.

While this sum was loaned to the council at the rock-bottom rate of 3.49 per cent in March 2012, Portsmouth has charged its own HRA inflated interest rates of 5.1 per cent and 4.9 per cent in the past two years respectively, billing the housing budget £2.7 million above what it would otherwise owe.

This interest rate raid is possible as Portsmouth manages its HRA loans in the same single pool as its general fund borrowings. While few authorities were expected to adopt this ‘single pool’ when they became self-financing in 2012, our analysis indicates one in three have single-pool arrangements which allow this kind of practice. The majority adopted the two-pool approach, which keeps HRA and general fund borrowings apart.

A spokesperson for Portsmouth Council, with whom Inside Housing shared its analysis, says its single pool approach allowed it to split debt charges to its HRA and general fund in a way which was ‘broadly equitable over the long term and detrimental to neither’.

As this analysis indicates, housing budgets are under such widespread attack from so many directions, it is tricky for governments to enforce the HRA ring fence.

Such a worry was foreseen by the last administration, according to official papers. On the eve of the 2010 election, the then housing minister John Healey agreed to update HRA guidance, after seeing evidence that 40 per cent of charges fell into grey areas.

That update of the now 19-year-old guidance had been ‘universally supported’ in official consultations; it would make HRAs ‘less vulnerable to significant changes in the economy’, official papers state. As revealed by Inside Housing, the review process has only just been restarted. Sources suggest it was shelved shortly after the election because councillors, under pressure to keep council tax low, had successfully lobbied ministers to ditch it.

Reinforcing the ring fence
A spokesperson for the Communities and Local Government department says: ‘The government is absolutely clear that the ring-fenced HRA is not to be used to supplement the general fund.’

The CLG has ‘powers to direct a council to return money to the HRA if evidence of its abuse merits it’, and tenants can raise concerns with authorities themselves or their auditors, she adds.

It seems tenants are taking matters into their own hands. Richard Tarling, chair of Charfield Court tenant management organisation in Westminster and John Brett, a member of a housing panel in the borough, plan to ratchet up pressure on the central London borough.

Both are dissatisfied with Westminster’s response to a 2011 internal review which identified ‘greater room for transparency’ in its HRA dealings. Mr Tarling aims to establish an official tenant scrutiny panel to examine HRA charges.

‘With the Audit Commission gone, there is a lacunae in regulator arrangements,’ he says. ‘The ring fence is porous and most councils have found ways around it.’

Inside Housing’s analysis shows Westminster raised its internal charges by 39 per cent over the past two years, from £2.8 million in 2011/12 to £3.9 million in 2013/14.

‘These increases are not a result of the central funding cuts,’ a spokesperson says. ‘Rather a response to…self-financing and developing the HRA business plan.’

Tenant impact
The human cost of rent raids can be found in the mailbag of Mr Tarling and Mr Brett’s local Labour MP Karen Buck. She has a ‘very heavy’ caseload for City West Homes, Westminster’s ALMO.

Her office handles ‘many disrepair cases’ requiring calls to Westminster’s environmental health department and has seen tenants’ homes that are black with mould, she says.

Ms Buck believes ‘stronger safeguards and complete transparency’ are needed, ‘especially where transfers from the HRA are rising so fast’.

City West Homes declined to comment. Our evidence suggests other MPs’ mailbags may soon start to bulge with disrepair cases as cash-strapped councils continue to pull funds through the increasingly inadequate ring fence. With signs that the rot has already set in, it might not be long before the wrecking balls return.

Largest service charge increases (2012/13 to 2013/14)

Local authority	Increase
Barking and Dagenham 1	£7.5 million
Leeds	£3.2 million
Basildon	£1.4 million
South Tyneside	£972,000
Westminster	£800,000
Stoke-on-Trent	£793,000
High Peak	£640,000
Redbridge	£595,000
Kingston	£557,000
Lewisham2	£370,000

1) Barking & Dagenham says its increase is due to ‘changes in management structures’ and the use of empty properties for temporary accommodation for which the housing revenue account also receives an income
2) Figure for 2013/14 provided as estimate

Source: Freedom of Information requests and Inside Housing analysis