Draft Guidance on the Operation of Housing Revenue Accounts (HRA) in Scotland response by Chartered Institute of Housing Scotland

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1 Draft Guidance on the Operation of Housing Revenue Accounts (HRA) in Scotland response by Chartered Institute of Housing Scotland The Chartered Institute of Housing Scotland (CIH) welcomes this opportunity to respond to this consultation on the draft guidance. The Chartered Institute of Housing is the professional body for people involved in housing and communities. We are a registered charity and not-for-profit organisation. We have a diverse and growing membership of over 22,000 people both in the public and private sectors. CIH Scotland has more than 2,400 members working in local authorities, housing associations, housing co-operatives, Scottish Government and Government agencies, voluntary organisations, the private sector, and educational institutions. The CIH aims to ensure members are equipped to do their job by working to improve practice and delivery. We also represent the interests of our members in the development of strategic and national housing policy. Rather than responding to the specific questions in this pro forma we have attached our responses at the end of this form. For more information on this consultation response please contact the Policy and Practice Team: Chartered Institute of Housing Scotland 4 th Floor 125 Princes Street Edinburgh EH2 4AD scotland.policy@cih.org

2 CIH Scotland response to the Draft Guidance on the Operation of a Housing Revenue Account (HRA) in Scotland General comment CIH Scotland welcomes the guidance and in particular its reinforcement of the importance of the original legislation and its intention to bring about transparency and fairness about how rental income is used. There is, though, a sense of an elephant in the room in that what the consultation does not acknowledge is the extent to which the guidance could lead to difficult and delicate discussions and decisions, particularly within those local authorities where the HRA has effectively been subsidising what should have been General Fund expenditure. Whilst it may not be very easy for some local authorities to embark on the process of changing how expenditure is apportioned, CIH Scotland is the view that this is in the best interest of tenants, that tenants should not be paying twice through rents and council tax and that it is crucial for transparency. Question 1 - the six key principles CIH Scotland welcomes the six key principles underlying the guidance, but would suggest that each prompts some important questions. 1 Ensuring compliance with existing HRA legislation CIH Scotland agrees that compliance with existing HRA legislation is fundamental to protecting the interests of council tenants. CIH recognises the need for clear guidance which interprets the legislation and clarifies the range of compliance requirements. The guidance largely achieves this. It would be helpful if the guidance could also set out details of the respective regulatory roles of Audit Scotland and the Scottish Housing Regulator in relation to Housing Revenue Accounts. 2 Ensuring that HRA assets should principally benefit HRA tenants either in direct usage or as investment properties providing a financial return If the HRA should principally benefit HRA tenants, this recognises that there will be other beneficiaries. The question for local authorities - and their tenants - is who will be involved in making decisions about beneficiaries and through what structure? This is a critical governance and scrutiny issue and one on which much greater clarity is needed from local authorities. 3 Properly recording the methodology for calculating and allocating HRA costs (including internal costs charged by the Council to the HRA) systematically and in sufficient financial detail to know who benefits from the services these costs relate to A systematic recording mechanism for calculating costs charged to the HRA - such as central staffing/overhead costs and internal service re-charges - is to be welcomed as there is a lack of transparency around this at present. This means, for

3 example, that in some local authorities, posts which are cross-tenure, such as anti social behaviour posts or housing policy posts, are fully funded by the HRA when the costs should at least be shared between the HRA and General Fund. However we do recognise that in some instances projects or initiatives may cease if shared funding is not possible and this may not be in the best interest of tenants - again transparency and talking to tenants will be crucial. Systematic recording will also bring about greater scope for benchmarking in order to compare rents nationally - with both other councils and with housing associations. 4 Updating the HRA cost allocation process regularly to reflect market and other changes including the allocation to the HRA of the appropriate proportion of council Trading Operation surpluses attributable to council housing activities Ensuring that HRA cost allocation on trading surpluses (for example from a Direct Labour organisation which sits outwith the HRA) reflects market fluctuations is a sensible and fair approach. The inclusion of this principle suggests that there may be anxieties about the consistency of existing approaches and about which areas of service delivery are being subsidised by the HRA or are being inappropriately credited to the HRA. There may well be a question about how quickly and at what cost local authorities can review their finances to comply with this principle. 5 Where legally entitled, charging non-council tenants benefiting from HRA-provided services that are currently only charged to council tenants CIH Scotland agrees in principle with apportionment of charges for clearly identified HRA-provided services, either individually to non-council tenants, or collectively through a General Fund charging mechanism to non-council tenants or to other social landlords. But we would suggest that the complexity of this should not be under-estimated, in terms of identifying what charges, agreeing what apportionment, assessing what proportion if any is legally enforceable, what the potential cost of collection might be (and how costs may be mitigated if legally enforceable collection is limited), and whether there is scope for such costs to be designated a corporate debt. 6 That regular discussions on the level and nature of HRA financial transparency take place with tenants themselves, Registered Tenants Organisations (RTOs) or other tenant representatives in relation to the income credited to, and expenditure charged to, the HRA in accordance with the principles underlying the Scottish Social Housing Charter CIH Scotland agrees that tenants obtaining clear information on how rent and other money is spent (as set out in Charter outcomes 14 and 15) must be premised upon the notion of regular discussions on the level and nature of income credited to and expenditure charged to the HRA. Importantly, this will require the development of clear engagement structures and mandates for this level and type of representative tenant scrutiny. Question 2 Is the list of outcomes in paragraphs 5 and 6 a complete list i.e. does it cover everything you would expect of your local authority landlord?

4 The outcomes set out in paragraphs 5 and 6 of the consultation paper are useful, but not necessarily sufficiently comprehensive in terms of the outcomes set out in the Charter, which reflects a modernised range of social landlord functions. There is a case for making stronger links between HRA guidance and Charter outcomes. For example, the Charter outcome on Value for Money arguably steers landlords towards providing improved unit cost information leading in turn to improved understanding of the quality of housing services relative to contractual rent and service charges. This outcome also frames tenant expectations around affordability of rent and the accountability of rent expenditure. Furthermore, the Charter sets out regulatory consultation and participation expectations and provides clear context information to tenants on what constitutes an HRA important matter. Question 3 Aside from the legal requirements for keeping a separate HRA and the requirements of the Scottish Social Housing Charter, do you feel that council tenants should obtain transparency on how a housing revenue account operates? CIH Scotland strongly believes that how an HRA operates is primarily a matter of transparency for council tenants. However we do believe there is also the matter of public accountability to tenants and others generally. CIH Scotland expects that the move to direct payment of housing costs (under Universal Credit) to tenants will mean that rent levels and the value for money of that rent and service charge will come under increasing scrutiny from tenants in the future. They are more likely to feel that they are now paying rent and some may therefore take a greater interest on how it is spent and accounted for. Also, CIH Scotland anticipates that the new welfare system may prompt renewed public interest in rent subsidy more generally. It is important that the social housing sector is well positioned to respond to any future pressures on legitimate HRA rent and service charge costs in order to continue to protect the interests of council housing tenants at a time of tight public sector budgets as well as welfare reforms. Question 4 With the exception of the council housing stock, should tenants and Registered Tenants Organisations have a full say in the future of HRA assets that are under-used by council tenants (e.g. land or commercial assets currently unrelated to the council housing stock); how the costs of upkeep are funded if retained in the HRA; or whether such assets are transferred out of the HRA and on what terms? CIH Scotland believes that council tenants should indeed have a full say in the future of HRA assets that are under-used by tenants but which nonetheless may be of value to retain on the HRA. It will be crucial for councils to demonstrate a business case for retaining such assets on the HRA, based on the respective likely benefit to current/future council tenants and non-council tenants.

5 As an example, in terms of land banking for council new build provision, a business case would require to demonstrate evidence from the Local Housing Strategy, and a planned, costed development programme, meeting the CIPFA Prudential Code. The question of what is the appropriate level and type of tenant involvement in HRA decision making will no doubt be more fully explored and developed by councils as they seek to develop tenant scrutiny structures that fit with strategic and democratic decision making arrangements and align with regulatory and Charter expectations. Question 5 Is further research, evidence and clarification required in Scotland on the concept of Core HRA costs Core plus HRA costs Non-Core HRA costs Core General Fund costs as outlined in paragraph 41? CIH Scotland believes that the proposed four way classification is an extremely useful and easy to understand starting position. It is understood from the evaluation of the HouseMark activity-cost benchmarking pilot in Scotland that many local authorities will be challenged to disaggregate HRA staffing information and time apportionment data across corporate functions. Hence the proposed core plus HRA costs category provides an opportunity to classify / record some of the more complex or contentious cost apportionment or internal recharge issues which can then be discussed and decided on by each local authority. In keeping with earlier comments, CIH Scotland would suggest that core HRA costs are clearly aligned with the full range of landlord services set out in the Charter. Question 6 In view of the tightening of local authority resources, are there any areas of its landlord service which you feel could be prioritised as being core or funded more appropriately not just by council tenants but by the wider population? CIH Scotland considers that classifying HRA categories can only be worthwhile if it involves an internal audit of both HRA and General Fund expenditure. There is recognition that this may be a time consuming process in some cases, given the lack of detail in existing cost accounting arrangements. The process is made more complex by the recent removal of ring fencing of certain local government expenditure, the development of single outcome agreements for business improvement, more corporate business delivery models, cross subsidy, matrix management and so on: all of these could be said to militate against the splitting of costs between the HRA and General Fund. Question 7 Having read through the guidance, do you feel that any further clarification of what it is seeking to do is required? The draft guidance clearly sets out the intention to more actively seek evidence of legal compliance in relation to the operation of the HRA and to improve HRA

6 accountability. CIH Scotland fully supports any endeavours to improve tenants and landlords ability to assess the value for money of landlord services. The guidance acknowledges that the landscape has changed since the 1987 legislation, and that a methodology for charging costs and making internal recharges from and to the HRA and General Fund has not developed in tandem. CIH Scotland believes there is a clear sense in the sector, not acknowledged in the draft guidance, that improved HRA accountability is likely to throw up a range of challenges for local authority finances more broadly. This first needs recognition within local authorities that change is needed. Thereafter the change process is likely to need sensitive handling and careful financial planning. The guidance does not acknowledge the extent to which compliance with the six key principles will or should rock the boat within many local authorities. The guidance also chooses to remain silent on what review or improvement tools local authorities might be expected to use to improve HRA accountability (remembering that this may well be a corporate review issue if many of the apportionments are non core HRA. So, for example, it is not clear whether the Public Service Improvement Framework will be the preferred model, nor how long the Scottish Government thinks councils need to make the required changes to funding arrangements.