Financial Facts of Moonlight Robbery

The government is reviewing the Housing Revenue Account (HRA) Subsidy System. It will produce an interim report this summer in time for next years HRA settlement, with a full report setting out proposals for the future by next year

How the HRA System works
In a nutshell the treasury decides what each councils rent income should be and how much they need to spend. If a council “needs” to spend less than its income then it pays the extra money to the government this is called being in “NEGATIVE SUBSIDY” Nearly all councils are in negative subsidy. In theory councils with too much money support those with not enough. In practice, across the country as a whole, there is a net transfer of council rents to the treasury via this system (£194 million in 2008/9)

The main elements of the subsidy calculation are:-

Major repairs allowance
+
Management Allowance
+
Maintenance allowance
+
Allowance to repay loans (capital charges)
_

Assumed “Notional rent”

= SUBSIDY

This could be a fair system where needs are properly assessed and surpluses shared, however there are 3 key catches leading to different kinds of “robbery” of council tenants which make the system very unfair to council tenants

The “catches”

1) Needs are knowingly under-estimated
a) Management and Maintenance Allowances

Government funded research carried out by the Building Research Establishment (BRE) (see “Estimate of the need to spend on management and maintenance in Local Authority Housing” June 2003) found that management and maintenance allowances were being funded at around 54% of need! At first the treasury increased allowances to narrow the gap between need and funding. However over the last 2 years these increases have dried up and it is currently estimated that management and maintenance allowances are funded at only 70% of actual need. By fixing allowances at less than true need the treasury prevents councils from keeping around £1,300 million of rent income that should be spent managing and maintaining council housing. Decent homes cannot be sustained if this under funding is allowed to continue

b) Major Repairs Allowance (MRA)

This is rent money council’s are allowed to keep to replace key components of a home at the end of their life. At first this allowance was funded according to researched need, but it has been effectively reduced over the years by up rating it only at inflation and not by appropriate building cost inflation which has been a higher increase. In addition, the results of the modelling of repair needs over 30 years in six localities published by CLG in March this year showed that the Major Repairs Allowance is 43% below the level needed (Inside Housing 14th March 2008) – This means a further shortfall of £950m a year.

Overall the total shortfall on all allowances is £2,250 million.

2) Using rents for capital charges that should be funded from taxes

At present council tenant’s rent pays for the capital charges (loan interest) on borrowing for investment in council homes. This investment includes improvements and contributes to the capital value of the council home. Despite the fact that council rents are funding this investment, when homes are sold under the right to buy very little of the sale income finds its way back into council housing. In effect the sale of council housing is funding national government and local government spending for the wider community. For this reason the capital charges should be funded from the treasury’s national pot.

Since Labour came to power up till 2005 £14,490 million of council rents has funded capital charges. We call this indirect robbery

3) Barefaced robbery

This has already been alluded to and is is more publically known. It is shown by the government’s own figures (see PQ 165558- Austin Mitchell) which predicts that the treasury will extract a surplus of £194 million this year in “negative subsidy”. The same answer predicts that this “negative subsidy” profit for the treasury is expected to increase to £421 million by 2011/12. Other answers (PQ 131845) to Anne Snelgrove reveal that between 1997 and 2005 the treasury robbed £2,850 million of tenants rents in the form of “negative housing subsidy”.

Since labour came to power (between 1997 and 2005) £2,850 million of our rents has gone straight to the treasury “barefaced robbery”

The total robbery (barefaced and indirect) what we call “moonlight robbery” between 1997 and 2005 amounts to £17,340 million
Hilary Armstrong promised the Daylight robbery campaign that the HRA would not be used to make a profit for the treasury and this promise needs to be honoured and the robbery should be repaid in the form of positive housing subsidy over future years

How can the system be fair?

Returning to the current subsidy calculation below

Major repairs allowance
+
Management Allowance
+
Maintenance allowance
+
Allowance to repay loans (capital charges)
_

Assumed Rent

= SUBSIDY

The moonlight robbery campaign argues that capital charges should be transferred to the treasury and that no negative subsidy be paid to the treasury.

That is the subsidy calculation now becomes:-

Major repairs allowance
+
Management Allowance
+
Maintenance allowance
_

Assumed Rent

= SUBSIDY (Nationally set to 0)

We also argue that the allowances should be increased to the levels of researched need researched by the government This means that:

Management + Maintenance needs to increase by £1,300 million

Major Repairs Allowance needs to increase by £950 million

TOTAL £2,250 million

By ending moonlight robbery (eg transferring
capital charges and ending barefaced robbery)
extra resources available = + £1,400 million

Resources still needed are £850 million a year

However as already stated between 1997 and 2005 £17,430 million was stolen in moonlight robbery and by returning this money at £850 million each year would provide enough money for the next 20 years. This enables a fair and sustainable future for council housing