Raiders of the HRA
Insight 07/07/16 by Keith Cooper
An Inside Housing analysis has now for the first time discovered the extent of another incursion on council housing budgets, one for which Whitehall is not accountable - not directly, at least.
These cuts to housing resources have been made discreetly by councils and are seldom declared clearly in papers prepared for public consumption.
Our analysis of financial figures from 100 council landlords has found that many appear to be filling big gaps in back-office budgets, opened up by 'general fund' austerity cuts, with housing cash.
These raids are carried out on ringfenced HRAs with a legal accountancy trick.
The trick allows councils to use housing budgets to prop up the shrunken budgets for central functions, like finance and legal. These functions, dubbed 'corporate and democratic core services', are used by a range of council departments, from waste collection to social care. Each department, including housing, is expected to contribute towards these corporate costs.
Each year, however, every department's share can be tailored - cut or increased - based, in part, on its capacity to pay.
According to our analysis, the 100 councils' back-office budgets were cut by almost £90m between 2011/12 and 2014/15 - a reduction of 15%. But over the same period, HRAs' contribution to this cost was hiked by £1.7m - an increase of 4.6%.
More than half of councils (55%) raised the contribution to core services from the HRAs over these four years. Almost a third hiked them by more than 20%. Ten councils doubled their internal charges on the HRA.
Poole hiked the amount paid by its HRA for back-office costs by 1,590%, from £10,000 in 2011/12 to £169,000 last year. South Tyneside quadrupled its charge to the HRA from £222,000 in 2011/12 to £891,000 in 2014/15. Doncaster almost trebled the charge over the same period, from £244,000 to £712,000.
Over the same four years, just under half of authorities (45%) reduced these internal bills, in some cases significantly. Camden, Leeds and Babergh cut their internal charges respectively by £1.7m, £252,000 and £214,000, for instance.
But overall, the 100 council landlords raised the contribution of their HRA by 5% at the same time as slashing their council spending on these back-office costs by 15%.
The net effect of the council-wide cut and increase in HRA contribution leaves housing budgets bearing a bigger burden of councils' central costs. In effect, local authorities are using social rents and housing benefit to keep corporate services ticking over in the aftermath of town hall austerity cuts.
The analysis found that the housing budgets of big city councils, like Newcastle and Stockport, are hardest hit. While 13 metropolitan authorities reduced back-office costs by, on average, 15.9% between 2011/12 and 2014/15, they tapped their HRAs for an additional 20%. This pushed up the housing departments' share of the central cost by 42.6%.
London boroughs, in contrast to other councils, slimmed their HRA contribution by 7.7% on average but slashed central services budgets by 23.3%, more severely than any other council type. This pushed up housing departments' share of the back-office bill by 20.4%.
Smaller district authorities in England's shires increased central costs by 2.9%, boosting their housing share by 9%. Unitary authorities reduced central costs by 16%, increasing the HRAs' share by 27.1%.
The unsurprising result of these cuts and increases is that larger numbers of all kinds of councils now bill their HRAs for a disproportionate share of back-office costs.
District councils paid for the largest proportion of back-office costs from HRAs: 10.8% on average in 2014/15. This relatively larger proportion makes sense, as housing is one of the districts' only main functions. Unitary authorities, which run major departments like social care and education as well as housing, pulled under 4.4% of their back-office costs from their housing budget.
But our analysis found that the number of authorities billing their HRAs for 15% or more of these central costs rose from 17 in 2011/12 to 23 in 2014/15.
The most eye-catching example is the unitary authority, Reading. It billed its HRA for more than half of the £1.2m cost of its central services in 2014/15. The council declined to comment.
The housing budget of Islington, in London - another noteworthy case - was billed for 43.7% of the authority's back-office costs in 2014/15, up from 37.7% in 2011/12. The London average is 6.9%.
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Some in the housing sector suggest it is logical that such a picture has emerged. The data consultancy Housemark has previously suggested that councils should "raid" their housing budgets to prop up council services (Inside Housing, 11 April 2014).
In its paper, Sense of purpose, Housemark argued that housing departments were not a "separate entity from the corporate authority" and that "it can and should support the 'centre' in terms of alleviating pressure on the general fund".
One organisation, which represents public sector finance experts, raises questions about the fairness of using social rents to plug gaps in back-office costs.
Ken Lee, chair of the housing panel at the Chartered Institute of Public Finance & Accountancy, says our research proves once again that ringfences around HRAs are too weak.
"As social tenants tend to be the poorest and are a minority in society, is it right that they should be supporting the majority in the community?" he asks.
"We should be looking at strengthening that ringfence and bringing it up to date."
Increasing internal charges on the HRA for back-office costs is a way councils could keep their council tax rates "artificially low", he adds. "The rules aren't very strong, but they expect fair charging: that those that use the service should pay for the service."
Basing charges on the proportion of social tenants in an area - as Islington appears to have done - seems like an "arbitrary" method, Mr Lee suggests.
The vulnerability of HRA ringfences were previously subject to annual checks by district auditors, employed by the Audit Commission until it was abolished last year.
This role has now passed to private accountancy firms, appointed by each local authority. "District auditors were keen on checking this kind of thing when the Audit Commission was around," Mr Lee adds. "This role has now gone to private auditors. They have some recognition of this issue, but not the same recognition as the Audit Commission."
The general trend towards increasing the burden on HRAs for back-office costs, uncovered by this analysis, is not common to all councils, however.
Just over a quarter of councils (26) cut their housing budget share of central services between 2010/11 and 2014, some significantly so. Five reduced their HRAs' share by more than 10%.