LOCAL GOVERNMENT FINANCE: ANNEX
HOUSING REVENUE ACCOUNT
General Principles
1. Income and expenditure in relation to a local authority's own direct provision of housing is ring fenced and recorded within the Housing Revenue Account (HRA). Schedule 15 to the Housing (Scotland) Act 1987 details the income and expenditure which should be charged to the HRA. The main items of income and expenditure are:
- income from rents;
- expenditure on managing, maintaining and repairing the housing stock; and
- expenditure on loan charges.
2. In general, local authorities are expected to ensure that they collect sufficient income from rents to cover their HRA current expenditure. Councils may transfer HRA surpluses to the general services account. However, they are not permitted to budget for a transfer of funds from general services into the HRA. The HRA is not permitted to show a deficit at the end of the financial year. If this occurs, authorities are required to transfer funds from the general services account to cover this deficit.
3. At the time of writing, there are 26 HRAs in Scotland. There has been 6 local authority whole stock transfers to Registered Social Landlords since 2003 and, once all stock is transferred, the respective HRA is officially closed under sections 94(1), (2) and (3) and 109(2) of the Housing (Scotland) Act 2001.
Capital Expenditure and Receipts
4. The prudential regime for local authority capital expenditure replaced previous control arrangements on 1 April 2004. The new regime was introduced under the Local Government in Scotland Act 2003. Local authorities are under a statutory duty (section 35) to determine the amount they can afford to allocate to capital expenditure. In doing so they are required to have regard to the Prudential Code issued by The Chartered Institute of Public Finance and Accountancy (CIPFA) in 2004 (SSI 2004 No 29). The Code requires that the capital investment plans of the local authority are affordable, prudent and sustainable. Thus local authorities essentially make their own decisions about how much they can afford to borrow to support capital expenditure plans. Scottish Ministers have statutory powers (section 36) to impose capital expenditure limits either at the 'all Scotland' level or for a particular local authority.
5. In the past, councils have raised substantial amounts of money, mainly from the sale of council houses but also the sale of land. These are known as HRA capital receipts. The requirement to set aside 75% of "Right to Buy" receipts and 50% from land and other HRA assets, which was introduced on 1 April 1996 to help redeem HRA debt, was removed from 1 April 2004. Some councils continue to generate financial surpluses from rental income in order to supplement their capital programmes whilst others do not and rely instead on capital receipts and prudential borrowing. Total (or 'gross') HRA capital expenditure is therefore usually funded in one of three ways:
- from prudential HRA borrowing;
- from any surpluses commonly referred to as capital expenditure funded from rental income (known as Capital Funded from Current Revenue or CFCR); and
- capital receipts (from the sale of council houses, land and any other HRA assets such as shops that are located on the ground floor of flatted accommodation etc).
6. Gross HRA capital expenditure is effectively the level of capital investment in the local authority housing stock which includes not only expenditure on the existing stock but also any expenditure incurred on new council housing. Local authority landlords are free to build new council housing subject to their self-imposed prudential borrowing limits but they are also required to meet the Scottish Housing Quality Standard by 2015 for the existing stock and this in itself will take up significant investment resources
Page published / updated: May 2009