The Housing Revenue Account

Background

From 1 April 1990 it became a statutory requirement for local authorities to maintain a separate ‘ring-fenced' account, known as the housing revenue account (HRA) which sets out the expenditure and income relating to the provision, supervision and management of council housing, flats and accommodation.

Under the ‘ring-fencing' arrangements the council cannot call upon the general fund or council tax related services to subsidise any losses that may be incurred by the HRA. Therefore, the costs of this service do not have any impact on the council tax you pay.

Housing strategy

The council operates a housing strategy with the purpose of presenting a comprehensive picture of local housing needs, resources, options, aims and action plans for housing. The strategy, covering the period 2008-2011 is named ‘Shaping our place' and confirms our plans for housing in that period. It considers all types of housing in the city - social rented, private rented, owner-occupied, general needs and housing with support. It identifies the current situation and looks at ways we can make Salford a better place to live. We have ambitious plans for housing in Salford. 'Shaping our place' will pull all these ideas together and set out how we will deliver them.

Decent Homes Standard

This reflects the governments vision to ensure that all homes are up to the decent homes standard, defined as warm, weatherproof and having reasonably modern facilities. This vision is shared by the council and forms an integral part of our housing strategy.

The council has produced and continues to develop a decent homes investment strategy which has taken into account the opinions and aspirations of our tenants. The plans provide for the use of a variety of our investment options, which provide for different solutions for the various parts of the city.

Salix Homes an arms length management company manages and maintains our council housing stock in central Salford.

For Pendleton the implementation of a private finance initiative project is ongoing whereby the council will enter into a long term contract with a private sector consortium that will be responsible to ensure that the council housing stock complies with the decent homes standard.

The housing stock in west Salford was transferred in October 2008 to city west housing trust, a new, not for profit housing company.

The 2009/10 and 2010/11 revenue budget

The original approved budget for 2009/10 provided for gross expenditure of £37.2 million, funded by matching income from rents, charges and subsidy. At that time it was assumed that there would be no contribution from reserves and this would leave a balance on reserves of £0.362 million.

The 2008/09 outturn produced favourable results mainly because of higher rental income from lettings, interest receivable, council tax reductions due to the stock transfer and adjustments to housing subsidy from the Government. This increased the actual level of reserves to £1.22 million.

The 2009/10 outturn position is in line with budget projections and therefore will not require any support from reserves. The gross expenditure estimate has increased to £41.7 million reflecting an increase in spend from the major repairs allowance matched by an increase in government grant via the housing subsidy arrangements. This is explained under the heading of major repairs allowance below.

The 2010/11 budget provides for gross expenditure of £36.4 million reflecting the reduced expenditure relating to the use of the major repairs allowance in 2009/10. The budget provides for a small contribution to reserves of £0.3 million.

A financial summary is given in the table below. This includes the latest estimated costs for 2009/10 and the budget for 2010/11.

Financial summary of the housing revenue account

Expenditure and income	2009/10 Latest forecast (million pounds)	2010/11 Budget (million pounds)
Strategy	0.6	0.6
Private finance initiative costs	1.0	1.0
Salix management fee	11.6	11.3
Housing repairs - Salix	8.3	10.2
Major repairs allowance	10.1	3.6
Financing costs - loan charges, interest, etc	7.2	7.0
Other expenditure including support services	2.9	2.4
Contribution to reserves	0.0	0.3
Housing rents and associated income	-30.9	-32.1
Other income	-3.7	-3.7
Government subsidy	-7.1	-0.6
Total	0.0	0.0

All priorities for 2010/11 can be directly linked to the action plan arising from our strategy, the over-riding priorities are to:

Progress our decent homes investment strategy
Implement a local authority new build programme
Continue the Pendleton PFI procurement
Work in partnership to deliver new affordable homes and regeneration
Improve our services for those who need them
Reduce the number of empty homes

Salix Homes

On 4 July 2007, the council established this arms length management company to manage and maintain its council housing stock in Central Salford and in the Pendleton area until the Pendleton PFI contract gets underway in 2011. The budget provides for the payment to Salix Homes for a monthly management fee based on a jointly agreed annual budget.

Private Finance Initiative (PFI)

This is a means by which we will be able to secure substantial investment from the private sector to improve, manage and maintain our housing stock in Pendleton. The council will enter into a contract with a PFI consortium (comprising private sector companies). The contract will set out the standard to which homes must be refurbished and set specific performance targets relating to repairs, maintenance and a range of other services currently provided by the council. Under PFI, the properties remain in council ownership and tenants remain as council tenants with all their existing rights including right-to buy.

In October 2008 the government announced its approval to the proposals for Pendleton and confirmed that it will be making £121 million available for investment. The scheme is currently under evaluation with bids from three consortia. Tenants and leaseholders are actively involved in choosing the developer and housing management organisation which will be selected by the council.

The budget in 2009/10 and 2010/11 provides for the costs covering the procurement stage of the scheme and includes specialist advisors for finance, legal, technical as well as the in-house staff working on the project, together with any surveys that are required to be undertaken.

Major repairs allowance

The major repairs allowance was introduced in 2001/02 and it represents the estimated long term average amount of capital spending required to maintain the stock in its current condition. This is effectively a capital resource which is paid to authorities by the government via the housing subsidy arrangements. In 2009/10 the government announced that bids would be accepted for an advance on the council's annual major repairs allowance for 2010/11. This effectively allowed the council to utilise part of its 2010/11 allocation to accelerate decent homes spending to stimulate the economy in 2009/10.

Rent restructuring

Under government proposals on rent restructuring rents should reflect more closely the qualities that tenants value in properties, and that there should be no unwarranted differences between the rents set on similar properties by different local authorities or registered social landlords (RSLs). Rents are to be based on the size, condition and location of the property and the level of local earnings.

The government initially gave ten years ending 2012 for the completion of the transition but they have subsequently revised that date and the current revised date for achieving rent convergence is 2012/13.

The council has approved a rent restructuring plan which provides for all property rents to be recalculated and modelled over the remaining transition period in line with government recommendations. Within this plan the council has approved an average rent increase of 2.61% equating to £1.51 per week (based on 52 weeks which is equivalent to £1.61 per week over 48 weeks due to rent free weeks) for 2009/10. It should be noted that for many tenants the increase will be restricted to £1.31 per week (based on 52 weeks) via the operation of the governments caps and limits scheme designed to limit annual increases.

Housing subsidy

This is a government grant paid to some housing authorities like the council to subsidise the costs of providing, managing and maintaining dwellings. The subsidy is calculated by reference to estimated costs based largely on the government's assessment of both expenditure and income using a guideline average rent. Under these arrangements the council are budgeting to receive £0.6 million in 2010/11 (£7.1 million in 2009/10).

The major difference in the level of subsidy received for 2009/10 and 2010/11 relates to the councils successful bid to bring forward part of the major repairs allowance from 2010/11 in order to sustain the decent homes programme.

HRA Reserves

The housing revenue account is required to maintain financial reserves to meet unforeseen circumstances that might arise. In an ideal situation reserves associated with an account of this size taking account of the volatile nature of the hra would amount to approximately 3% of the gross budget equating to £1.1 million on the gross budget of £36.4 million. This is the level of reserves recommended by the audit commission.

A formal risk assessment exercise has been undertaken similar to that used for the general fund to review risks in relation to reserves. This indicates that a level of reserves of approximately £1.4 million is required.

The following table indicates that at 31 March 2011 reserves are expected to be £1.5 million in line with the current level of reserves required to meet expected risks.

Estimated balances	Millions of pounds
Actual reserves at 31 March 2009	1.2
No requirement to or from reserves in 2009/10	0.0
Anticipated reserves 31 March 2010	1.2
Contribution to reserves 2010/11	0.3
Estimated reserves as at 31 March 2011	1.5