Public & private

It is usual at this time of year to witness a number of new arrangements in local council finances. This April, however, many more changes than usual will come into force.

A number of these changes were introduced as part of the subsidy determinations issued just before Christmas. Together they will have a considerable impact on the substance and presentation of council housing accounts.

In presentational terms, the most significant change is the removal of rent rebates and the associated subsidy from the housing revenue account. This will help to demonstrate, more starkly than before, the contributions councils make to or receive from the national pot.

Rough calculations based on final subsidy determinations indicate that about 200 or so authorities (62% of the housing stock) will be contributing to the pot and about 40 (the other 38%) will be drawing from it. Generally, the ones still receiving subsidy are the largest housing authorities with the highest levels of outstanding loan debt.

Paradoxically, however, the position for many is a lot better than it might have been because of the second significant change this year: the distribution formula for management and maintenance allowances. It means many councils can retain more of their rent income and are paying less back to the national pot than would otherwise have been the case. This has led to a substantial redistribution of resources away from some councils, especially those in London, towards other regions.

The third significant change concerns a change in the rules governing the application of capital receipts. From April all housing authorities, including debt-free ones, will generally be required to contribute 75% of their right to buy sales receipts to the national pot rather than using this to repay housing debt, although debt-free authorities will be eligible for transitional arrangements.

It will be even more important for authorities to plan ahead if they are to use the new freedoms effectively

Following a late change of heart, capital receipts received in 2003/4 will no longer be deducted from subsidy. This gives authorities a brief window before March to make real savings if they are able to bring forward sales.

Part of the money recycled after April will be used to support new council borrowing (some of it through arm's-length management organisations) with the balance being allocated to other priorities, including those now determined at a regional level by the new regional housing boards.

The fourth big change is the move towards prudential borrowing, giving councils more flexibility to borrow. Mainstream supported borrowing to the housing revenue account has reduced substantially this year overall. Consequently, many authorities will have to examine their other revenue resources quite carefully before committing to substantial extra borrowing.

It will be even more important for authorities to budget ahead, as part of their business planning, if they are to use these freedoms effectively. Regardless of whether the housing strategy has received a "fit for purpose" rating, it would be wise to update the base business plan position, since this will be a critical part of the option appraisal process that all councils must complete in the next 18 months.