Council tenants need to be vigilant of council management of the housing revenue account ring-fence.
In December of last year Nottingham City Council issued a section 114 notice, acknowledging that it had acted unlawfully by using housing revenue account money to prop up its General Fund . The notice was issued after a Chartered Institute of Public Finance & Accountancy report commissioned by the council found that more than £14 million was wrongly credited to its general fund over a period of six years.
Further investigation by CIPFA has now revealed that as much as £40 million may have been illegally handed over to the General Fund. They can’t be certain because Nottingham City Homes ledgers do not differentiate between HRA and non-HRA spending.
The HRA is a ‘ring-fenced’ account, for council housing, which sits in the council’s General Fund. The main income of the HRA is tenants rent and service charges. The ring-fence was originally introduced by Thatcher to stop the rates (precursor of the council tax) from being used to support council housing, though it also meant that tenants’ rent could not be used for other services. Any transfers between the two accounts can only be in limited and defined ways1, such as the HRA being charged for services provided by the General Fund (e.g. accountancy).
Ever since it was introduced some councils have endeavoured to find devious means to circumvent the ring-fence, including by double-charging tenants for services which they pay for through their council tax. This case of Nottingham is certainly the worst example which has thus far been found of breaching the ring-fence.
Nottingham City Homes
In 2005 the council set up Nottingham City Homes as an ALMO (Arms Length Management Company) to manage its council housing. This was at a time when the New Labour government was denying councils the funding to modernise their homes and pressuring them to transfer their housing stock to a housing association. Council housing was said to be “a failed mono-tenure”.
Although around 80% of transfer ballots would eventually be voted through by tenants (there was money on offer if tenants voted ‘the right way’) there were some major victories rejecting transfer. The ALMO was a kind of halfway house seemingly devised because of tenant resistance to transfers. The advantage for the government and local politicians who supported this policy was that whereas transfer required a ballot of tenants to agree it, setting up an ALMO did not.
The incentive for councils to set up ALMOs was the availability of extra funding which the New Labour government denied to councils if they wanted to maintain ownership of their housing.
Labour conferences regularly voted for the ‘fourth option’ (funding councils to modernise their stock) but it was ignored by the leadership.
The ALMO programme overall cost more than £5 billion. This wasn’t government funding; the cost was added to the national council housing debt. This meant that tenants all over the country were paying for the ALMO programme because council housing debt is serviced by council tenants’ rent.
Both NCH and the council failed to ensure that the ring-fence was preserved. This doesn’t appear to have been a result of negligence but of conscious policy. The surpluses from rent were used as a means “to help with General Fund budget pressures”.
“The Penn Report concludes that the payments in question were conceived initially by the then Corporate Director of Development as part of a wider and ongoing budget and savings exercise. The concept of the payments would have been evaluated by a working group of officers and councillors, and subsequently agreed at budget meetings by the Executive.”
“… it is clear that the annual rebate received by Nottingham City Council was used to benefit the pressures on the GF”. As the annual expectation of savings/payments grew “it is likely that this became an accepted mechanism to divert funds from the HRA to the GF”.
The report says that there was little or no challenge to the legitimacy of the “savings regime” either within the council or NCH.
“Where officers, Councillors or NCH Board members, in their interviews, indicated that they did raise concerns they were apparently either reassured about legitimacy, ignored, or dissuaded from voicing their concerns wider.”
This suggests a lack of political courage at least on the part of councillors who were aware of what was happening but chose not to make it public.
Taking it back in-house
The council leadership has decided to give NCH 12 months notice of ending their contract and bring its functions back in-house. This is a welcome step. However, the council now has to find an extra £25 million to pay back to the HRA. It may have to borrow it. It has already lost £38 million as a result of the collapse of its company Robin Hood Energy.
I have called this the Great Nottingham Council Rent Robbery because the council leadership and officers connived to use tenants’ rent for purposes other than council housing; money which should have been used for the upkeep of their homes. The Labour Party nationally ought to investigate how this was allowed to happen and who were the people responsible. Anybody responsible still in positions of power should be thrown out on their ear, not just for a breach of the law, but for an act of contempt for council tenants, many of who would be considered traditional Labour voters.
Council Leader David Mellen said
“It’s important to make clear that the funding in question has been used for purposes that benefit local people but that are not an appropriate use of what is effectively tenants’ money….It also needs to be recognised that in addition to achieving decent homes standards, Nottingham City Homes has worked to improve core housing services, empower tenants and bring about significant improvements to housing stocks, including the response to fire safety following Grenfell and home insulation works.”
That “the funding in question has been used for purposes that benefit local people” is irrelevant. It was tenants’ money and tenants were not consulted about it’s use. How can Nottingham Council be said to have sought to “empower tenants” when £40 million of their money has been denied them?
This sorry tale is a reminder to council tenants to be vigilant about what your council is doing in relation to the ring-fence. Tenant activists need to acquaint themselves with the rules governing the ring-fence (shown in the link) to make sure that financially stretched councils are not using your rent to bolster the General Fund, to the detriment of the maintenance and renewal of council homes.
April 29th 2022