Local Authority Housing Revenue Accounts (HRA)
It is said that local authority housing finance is more complicated than life itself and that there is not a man alive who understands it.
Consequently we will not attempt to explain it in depth here but only to set out one or two basics as they affect leaseholders and then point you in the right direction so that you can find out more.
1. Housing expenditure is kept separate from other local authority expenditure. The reason for this is highly political, involving as it does the capping of local authority spending during the 1980s. For a full explanation see a House of Commons Library Research Paper.
2. All monies spent on leasehold properties is supposed to identified and charged to leaseholders so that neither do leaseholders subsidise secure tenants nor the other way about.
3. It flows from 2. that whereas there are various ways in which local authorities may be able to cap charges to leaseholders, they will only be able to do so where the money that is not being recouped from them is to come from a source outside of the Housing Revenue Account such as New Deal Funding. In consequence all capping has to be approved by the Office of the Deputy Prime Minister and be hedged about by conditions that that can only rarely be fulfilled.
4. Local Authorities have to keep account of the debt that they acquire through their housing activities and just like any organisation or even private individual, their future ability to borrow is limited by the level of their outstanding debt.
Stock Option Appraisal
When Central Goverment decided to impliment its "Decent Homes" policy it asked local authorities to identify how much money they would need beyond their existing resources to bring their housing up to the standard.
Once this had been done they were to undertake 'Options Appraisals' to decide which of three measures they would take in order to get Government approval to raising the necessary finance.
Each of these options has one affect in common, that being to separate the function of housing strategy, which remains in each case with the local authority, from the function of housing management that goes to a separate body. This has great disadvantages as anyone who lives under an ALMO regime will relate. In Islington for instance parts of estates have been solf off with no reference to the Homes for Islington let alone the residents.
The options were to form an Arms Length Management Organisation (ALMO), to buy in a Private Finance Initiative (PFI) or to undertake a transfer of Stock to a Registered Social Landlord (RSL)
Some local authorities either already had their housing up to standard or could sort out remaining problems within their existing funding and they did not have to go for any of the measures unless they wanted to.
Stock Transfers
Many authorities transferred all or part of their stock to RSLs and this process is still being followed across the country. To carry this out it is compulsory for the authorities concerned to win a ballot of the ordinary tenants concerned wherever the numbers of homes concerned is beyond a certain number.
Whilst leasholders might be balloted at the same time their vote cannot be enforced a veto on the transfer. Some local authorities are deliberately keepin ed for their Some local authorities are deliberately keeping the numbers down so that they can avoid asking their residents for approval. These transfers are either termed trickle transfers, where they involve isolated groups of homes, or phased transfers where they comprise a series of blocks of housing across a defined area.
RSL finance lies outside our scope but most of it amounts to borrowing, under the supervision of the Housing Corporation, against the revenue stream of the rents, something that local authorities are not allowed to do.
Private Finance Initiatives (PFIs)
PFIs have a complexity all of their own. Their only advantage is to Gordon Brown, the Chancellor of the Exchequer, who gains because he has so far been able to keep the massive borrowing that it involves off the Public Sector Borrowing Account. It will create quite a stir if ever the EU decides to rule against this.
Under a PFI scheme most of the money is borrowed by the PFI consortium concerned at the rates of interest that large companies must pay rather than the lower rates that local authorities or Government pays. The remainder of the monies required in order to overcome the expensive nature of the deal are paid as PFI credits by Central Government.
Fortunately PFI has rarely been chosen as a favoured option. In London it is only Islington that has pursued it as an option for the refurbishment of some its existing property. Universally condemned and deeply unpopular it is to be the subject of a Leasehold Valuation Tribunal case that now has its hearing delayed until December 2006. This delay is necessary because despite the fact that it took 4 years to set up the contract which had now been running for 3 years during which 125 properties have been worked on (refurbished would be too strong a term) the PFI contractors have yet to work out what they are supposed to add to the charges leaseholders by way of a fee. Currently the favoured figure has been reduced to 40%!!!.
Should you want to know more about Islington's PFI then refer to Private Finance Initiative Leaseholders Action Group (PFI-LAG).
Arms Length Management Organisations (ALMOs)
The most popular Option amongst both local authorities and Central Government has proven to be the transfer of the housing managemnt only to an Arms Length Management Company (ALMO).
If you asked London's secure tenants at the time what their priorities were, they would answer that they wanted their repairs done properly, and on time, and they wanted better security to their flats and communal areas. However ALMOs were sold to tenants on the promise of new kitchens and bathrooms. In the event it proves that many tenants will not get either kitchens or bathrooms but they had failed to read the small print and sold direct control by their elected local authority 'for a mess of pottage'.
As the stock remains in the ownership of the local authority it is argued that there is no need for any ballot of either secure tenants or leaseholders. However many local authorities did hold ballots and some went against the formation of ALMOs. Of those that voted against, there are some who have been told to vote again until they get the answer right (do a Denmark) whilst a few have bowed to democracy.
There are now some 100 or so local authorities who have turned their backs on the formation of ALMOs and a federation of such authorites has been formed.
There are many popular mis-conceptions about ALMOs.
Ironically one of these is that they operate at arms length from their council owners who still sign the contracts on the advice of the ALMO boards. In practice the only thing that is at arms length is any form of consultation and democratic control.
Most important of the other mis-conceptions concerns the nature of the finances that were levered in by the formation of ALMOs. This is widely thought to be in the form of a grant to the ALMO itself when in reality it only amounts to permission to add to a local authority's existing housing debt.
See the letter on this sent to Jeremy Corbyn MP by Yvette Cooper MP, Minister of Housing in January 2006.
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