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Councils increasingly look to HRAs for capital spend
Councils are increasingly funding capital spending through their Housing Revenue Accounts (HRAs) or major repairs reserves as government funding has decreased, a National Audit Office (NAO) report has found.
Since 2010/11, funding from the HRA or major repairs reserves to support capital spending has increased by 58%. In 2010/11 £1.4bn came from HRAs, compared to £2.2bn in 2014/15.
The NAO’s report, published today, looks at how councils’ capital funding and spending has changed since 2010, when the government started to reduce funding for local government.
It found there are increasing pressures from capital spending and if authorities “cannot reduce their capital costs… it will place further pressure on their revenue spending”.
Developer contributions to capital spending have barely risen – £600m was used in 2010/11, and this rose to just £700m by 2014/15. The report does not break down what activities the capital spending has funded.
The NAO said while some councils have set up housing companies to increase future revenue income and there is “significant interest” in these types of schemes, some authorities think the potential to benefit from these initiatives is “limited because of the nature of their local economy and property market”.
Councils also recognised these schemes “came with risks, particularly in relation to a fall in property values”, the report said.
The NAO said councils have “sought to protect themselves by designing schemes around rental incomes rather than sales”.
Councils increased their spending on loans, from £122m in 2010/11 to £325m in 2014/15. The NAO said councils may be borrowing from the Public Work Loans Board to support other providers who cannot access the PWLB. Warrington Council told the NAO it had borrowed from the PWLB to finance loans to local housing associations.
Spending on fixed assets such as buildings increased by £402m, or 3.8%. The largest area of spend was on new construction, conversion and renovation. This accounted for 75%, or £9.2bn of all capital spending in 2014/15.
However, a number of councils said they were investing less in maintaining their existing asset base. Some councils have reduced, or plan to reduce, revenue spend on routine repairs and maintenance because of budget pressures.
The NAO said this may “subsequently lead to a need for higher or earlier capital spend in order to ensure that the asset remains serviceable”.
