Alison Scott Wednesday, May 18, 2011

Money Matters

Colleagues in housing and treasury management are currently immersed in the accounting implications of housing revenue account (HRA) reform, and getting to grips with issues such as the apportionment and splitting of debt and, more trickily, how to apply depreciation within the HRA.

In our recent consultation there was broad support for options put forward for splitting debt, but more questions arose from the proposed solution for depreciation. Depreciation can easily be dismissed as a purely accounting issue but, as the responses show, as soon as it is proposed to hit the bottom line, it really matters.

We believe the approach taken by our work on infrastructure assets, basing depreciation on replacement cost and condition does provide an affordable solution, and will work with a number of authorities to test this.

While much focus has been placed on accounting issues, we must not ignore treasury management. Indeed, this is an issue which is becoming more significant as we get closer to D-Day.

At the point local authorities have to make payment to the DCLG to ‘buy themselves out of subsidy’, they will need to have raised the cash to make the payment.

At first, this doesn’t appear problematic. Local authorities borrow money every day to fund large capital schemes. However, the total value of this borrowing is more than £13bn – larger than the average government issue of debt.

It is critical to the success of the proposal that this borrowing, and its potential impact on the markets, can be managed on a timely and sensible basis. With the timetable for the Localism Bill uncertain and Public Works Loan Board rates making market debt more attractive, a flexible approach to how this is managed is vital.

Alison Scott is assistant director, local government finance and policy at CIPFA

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