Guidance

Operation of the Housing Revenue Account ring-fence

Published 10 November 2020

Applies to England

1. Introduction

This guidance updates and replaces Circular 8/95 published by the former Department of the Environment (DoE), to which the Ministry of Housing, Communities and Local Government (MHCLG) is a successor. It gives advice to local housing authorities in England on certain aspects of the Housing Revenue Account (“the HRA”).

DoE Circular 8/95 provided valuable advice and gave clarification of whether various items of expenditure and income should be accounted for inside or outside the HRA. However, circumstances have changed: estates are not necessarily purely council-owned and an increasing proportion of those living on these estates are no longer tenants of the council.

This guidance restates ministers’ established policy for the HRA and introduces no new issues of principle. However, it does highlight the need to be fair to both tenants and council taxpayers and that there should be a fair and transparent apportionment of costs between the HRA and General Fund.

This guidance is intended to be a helpful reference document for authorities, tenants and auditors. This guidance is not intended as an authoritative statement of the law on the keeping of the HRA, and authorities should take their own legal and accounting advice, as necessary, and will need to satisfy their auditors about their decisions.

2. Statutory background

Expenditure and income relating to property listed in section 74 of the Local Government and Housing Act 1989 (“the 1989 Act”) must be accounted for in the HRA. This comprises mostly housing and other property provided by authorities under Part II of the Housing Act 1985 (“the 1985 Act”).

Schedule 4 to the 1989 Act (as amended by section 127 of the Leasehold Reform, Housing and Urban Development Act 1993) specifies the debit and credit items to be recorded in the HRA. The Housing (Welfare Services) Order 1994 specifies the welfare services which must be accounted for outside the HRA.

3. General principles

The statutory provisions referred to above reflect the government’s policy that the HRA remains a ring-fenced account within the General Fund; it should still be primarily a landlord account containing the income and expenditure arising from a housing authority’s landlord functions.

Property in the HRA

At its most basic, when taking any decision on whether expenditure or income should be accounted for in the HRA, the test that should be applied is “Who benefits?” That is to say: who is the major contributor of the item of income, or the major beneficiary of the expenditure under consideration? Hence, should the HRA bear the full cost or only part, or should it benefit from the entirety of the income, or is some of it applicable to the General Fund?

In some cases, such as rental income or expenditure on housing repairs, it is clear that the HRA is the correct accounting vehicle. Conversely, legislation places transactions concerning rent rebates and housing benefits in the general fund. Nevertheless, there is a substantial ‘grey area’ of items of income and expenditure where differing and perhaps unique local circumstances will suggest different solutions. These are the decisions where local flexibility is best employed using the “who benefits?” approach.

The main consideration when deciding whether the costs and income associated with a particular property should be accounted for in the HRA is the powers under which the authority is currently providing that property. Section 74 of the 1989 Act sets out the property that must be accounted for in the HRA, by reference to the powers under which that property is held.

A property has to be accounted for within the HRA if it is currently provided under Part II of the 1985 Act or any of the other powers specified in section 74 of the 1989 Act (referred to here as “Part II housing”). The account also extends to any outstanding debts or receipts which arose when a property was so provided and which are still outstanding following its disposal.

If a property is not provided under the powers listed in section 74(1), or covered by a direction under section 74(1)(f), the authority must not account for it in the HRA - subject to certain exceptions set out in section 74(3). The HRA (Exclusion of Leases) Direction 1997, made under section 74(3)(d) of the 1989 Act, excludes from the HRA leases of up to 10 years for dwellings taken out by authorities for the purpose of housing homeless households.

If an authority wishes to include in the HRA property which is ancillary to Part II housing but not up to now provided under Part II, it will be necessary to obtain consent from the Secretary of State under section 12 of the 1985 Act (see also section 15 of the 1985 Act for London authorities). Such applications will be considered on their individual merits.

Equally, properties which may originally have been provided under one of the powers in section 74 of the 1989 Act (or their predecessor powers) may no longer fulfil their original purpose. In these circumstances, the authority should consider their removal from the HRA by appropriating the property to a different purpose. Examples of properties which might fall into this category are estate shops and other commercial premises, such as banks, post offices, workshops, public houses, industrial estates and surgeries, where there is no longer any connection with the local authority’s housing.

The decision is for the authority to take, though it should be able to explain the basis of its decision to its external auditor and tenants, if called upon to do so.

Authorities should have regard to the powers available to them to hold property when they are considering whether to appropriate it out of the HRA. Section 19(2) of the 1985 Act requires authorities to obtain the Secretary of State’s consent before a house, or part of a house can be appropriated for any other purpose.

If a property is transferred between the HRA and any other revenue account within the General Fund, this will involve adjustments to the HRA and other revenue accounts in accordance with any direction under paragraph 5(1) of part 3 of Schedule 4 to the 1989 Act and HRA capital financing requirements, and in accordance with the relevant determinations under Chapter 3 of Part 7 of the Localism Act 2011.

Amenities

These include play and other recreational areas, grassed areas and gardens and community centres. In each case it is for the authority to form its own judgement on whether provision is proper under Part II of the 1985 Act and the extent to which the costs should be charged to the HRA. There can only be a charge to the HRA where the amenities are provided and maintained in connection with Part II housing accommodation.

Where an amenity is shared by the community as a whole, the authority must have regard to paragraph 3 of Part III of Schedule 4 to the 1989 Act. This requires a contribution to be made from the General Fund to the HRA reflecting the general community’s share of the amenity.

Management and maintenance services

The landlord is often best placed to provide wider services for neighbourhoods and communities that go beyond their traditional remit. When taking decisions locally, authorities need to demonstrate transparency to both tenants and Council Taxpayers that there is a fair apportionment of costs between the HRA and the General Fund.

To assist in determining what should and what should not be charged to the HRA, management and maintenance services can be expressed as core, core plus or non-core services.

Core services may be regarded as the ‘bricks and mortar’ functions of housing management, maintenance, major repairs and any associated debts and so forth. They are generally provided for the principal benefit of the landlord’s tenants and leaseholders, not the wider community. Core plus services are those provided as additional services ancillary to the primary purpose of housing provision, which may have wider benefits to the overall community. A service that cannot be defined as core or core-plus should be accounted for in the council’s General Fund.

Core services

• Repair and maintenance
  • Responsive
  • Planned and cyclical
  • Rechargeable repairs
    
    
• General tenancy management
  • Rent collection and arrears recovery
  • Service charge collection and recovery
  • Void and re-let management
  • Lettings and allocations of HRA properties only, any work carried out in respect of non HRA properties should be charged to the General Fund
  • Management of repairs
  • Antisocial behaviour: low level
  • General advice on tenancy matters
    
    
• General estate management
  • Communal cleaning
  • Communal heating and lighting
  • Grounds maintenance
  • Community centres
  • Play areas
  • Estate officers and caretakers
  • Neighbourhood wardens
  • Concierge
  • CCTV
    
    
• Policy and management
  • HRA share of strategic management costs
  • Setting of rent levels, service charges, and supporting people charges
  • Administration of the Right to Buy

Core plus services

• Contribution to corporate antisocial behaviour services. Where the service is entirely charged to the General Fund it may be appropriate for the HRA to contribute to these costs
• Tenancy support
• Maintenance of tenant gardens - unless a separate charge is made for the service
• Supporting people services - HRA housing related support services only, for example:
  • Sheltered accommodation wardens
  • Alarm services

Non-core services

It is the view of MHCLG that it is inappropriate to assume that these services will be wholly charged to the HRA. Their costs should be met from the General Fund.

• Administration of a common housing register – costs should be split appropriately between the HRA and General Fund
• Street lighting
• Dog wardens
• Personal care services
• Homeless administration
• Housing advisory service

The landlord should decide, within the requirements of existing legislation, whether it is appropriate to account for a proportion of these in the HRA or in the General Fund, using the ‘Who benefits’ principle. If the benefits of the service accrue primarily to the wider community, it is probable that the cost is a better fit in the General Fund, though it would be permissible to recoup a portion of any such cost from the HRA where it can be demonstrated that there is a benefit to HRA tenants or properties.

This does not imply any general discretion to transfer resources across the ring-fence; rather it is for the authority to apportion any costs or income for a service appropriately between accounts to reflect the benefit enjoyed by HRA tenants and leaseholders on one hand and the wider council taxpayer on the other.

Where a local authority is taking decisions concerning the correct place to account for new services or is reviewing existing practice in the light of evolving circumstances, the government would expect that tenants should be consulted, or involved in the decision-making process.

Homelessness administration

Authorities should consult the decision of the Court of Appeal in R. v London Borough of Ealing, ex parte Lewis, (1992) 24 HLR 484, when deciding how to account for homelessness administration costs. The case decided that not all the costs associated with homelessness administration by Ealing Borough Council should be charged to the HRA; only costs that fall within the description of ‘management of houses and other property’ can be included in the HRA.

Housing advisory services

The Court of Appeal’s decision referenced above also covered Ealing Borough Council’s costs on housing advisory services. Authorities should have regard to this aspect of the decision when considering the apportionment of costs relating to the provision of housing advice.