The reform of Housing Revenue Account Subsidy
This note provides background on the old Housing Revenue Account (HRA) subsidy system and considers some of the issues associated with it up to its abolition in April 2012. This note will not be updated – information on the self-financing regime can be found in Library note SN/SP/6776 Local housing authorities - the self-financing regime: progress and issues. A further paper, CB8963, A new era of social rented housing in England? (2020) considers prospects for social rented housing following the lifting of the HRA borrowing caps in 2018.
Local authorities with housing stock are required to record all income and expenditure in relation to these dwellings in their Housing Revenue Account (HRA). Until April 2004 local housing authorities whose income (e.g. tenants’ rent payments) was projected to exceed their expenditure (e.g. on management and maintenance of the housing stock) on the Housing Element of their HRAs (i.e. their HRAs were projected to be in surplus) received reduced subsidy from the Government on the Rent Rebates (Housing Benefit) paid to their tenants. This system was criticised because it resulted in the rent payments of “better off” tenants not in receipt of Rent Rebates helping to meet the cost of financial help for poorer tenants via Housing Benefit: this process was labelled the “tenants’ tax”. More information on this system can be found in Library Research Papers 00/87, Rent Rebates and Local Authority Housing Revenue Accounts, and 02/71, Local Government Bill: Housing Finance Clauses.
In 1999 the then Government announced that it intended to introduce resource accounting into the HRA and that, as part of this process, Rent Rebates would be removed from the HRA. The 2003 Local Government Act achieved this. It removed Rent Rebates from the HRA and provided for them to be met by Rent Rebate subsidy payable under the Social Security Administration Act 1992. However, the 2003 Act also made provision for housing authorities with an assumed surplus on their HRAs to pay these surpluses to central Government. These surpluses, together with a contribution from the Exchequer, were redistributed to those housing authorities whose assumed expenditure on their housing stock exceeded their assumed rental income. This system proved highly controversial.
On 30 June 2009 the Labour Housing Minister, John Healey, announced that Government’s intention to “dismantle” the subsidy system and a consultation process was initiated. On 8 June 2010 the new Housing Minister, Grant Shapps, confirmed that responses received would be analysed and an announcement would be made on whether the proposal would be taken forward. On 5 October 2010 he announced that the subsidy system would be replaced; measures to achieve this were included in the Localism Act 2011. Local housing authorities with retained stock became self-financing in April 2012.