reported this week that
three English councils have transferred a total of £34.5 million
out of their HRAs to relieve financial pressure on their General
Funds. In doing so, Manchester, Oxford and Dover used urgency
powers to take advantage of a loophole in the law
before it was closed.
They relied on a provision in the Local Government and Housing Act
1989 which allows councils no longer receiving housing subsidy to
transfer their HRA balances to another account. The section of the
Localism Act repealing this provision [under Commencement
order No 9] did not take effect until 1 October.
Opinion is divided on the legality of these transfers. All three
councils received advice that they were legal, although CLG is
reported to have said that it is "looking into the appropriateness
of these transfers" and "considering next steps". The relevant part
of the 1989 Act [Schedule 4, Part III,
paragraph 2] allows a council which is no longer receiving
housing subsidy to transfer all or part of its HRA balances to
another account. It was clearly originally intended to apply to
councils left with HRA balances following large scale voluntary
transfer of their housing to a housing association.
But replacement of the housing subsidy system by self-financing
may have inadvertently extended its application to all councils
with HRAs. What is clear is that, whether or not such action is
within the letter of the law, Parliament clearly never intended the
law to be interpreted in this way, and such transfers are
completely alien to the principles of self-financing.
The intention of self-financing was that all councils with housing
would be left, following a debt adjustment, with just enough rent
income to support the management and maintenance and long-term
repair of their housing stock, with any surpluses arising used for
housing purposes to the benefit of existing or new tenants.
Councils signed up to take on additional debt in exchange for a
commitment from the Government to put an end to creaming off a
significant part of rent income through negative housing
It was never part of the plan to give councils the opportunity to
milk HRAs in place of Government. It is clear that the councils in
question, along with many others, are in acute financial
difficulties. But the danger is that their action starts to push
open a door that could lead to the unravelling of the
The timing of these decisions is not helpful. Also this week, CLG
issued a consultation paper
proposing to cap the charges that can be recovered from council
leaseholders for certain repairs and improvements.
I will discuss these proposals in detail in another blog. But my
immediate reaction is to argue that the government cannot dictate
what repairs will cost, and if the appropriate share of those costs
cannot be recovered from leaseholders, it will be tenants who have
to pay. It is much harder, however, to take a high moral tone with
a government which is proposing to go against the principles of
self-financing and the HRA ring fence if even a few councils are
seen to be doing the same.