Circular 8/95 was issued by the then Department of the Environment on 1st May1995 to provide guidance on the operation of the housing revenue account ring-fence. It followed some controversy and some legal cases regarding the interpretation of the ring-fence legislation that is contained in the 1989 Local Government and Housing Act. Both the Act and the guidance are based on the concept that the housing revenue account should contain only income and expenditure that is related to the council’s role as a landlord and that housing revenue account resources should not be used to fund any of the council’s other activities.
In 2008 the Department for Communities & Local Government established a working party to consider reform of the finance of the housing revenue account. Adrian Waite was one of the members. Its focus was on the proposal to introduce self-financing. However, it also considered the operation of the ring-fence and recommended that the rules be strengthened to protect tenants from costs being charged to the housing revenue account that were outside the spirit of the legislation. The former government accepted this recommendation but the current government decided that no change was necessary to the guidance as the principle of ‘localism’ meant that local authorities should be free to interpret the legislation as they wished.
During recent years there have been many instances where local authorities have been criticised for charging costs to the housing revenue account that many would consider to be the costs of general fund services such as libraries, community centres and street cleaning. In 2013 five local authorities took advantage of a loophole in the legislation to transfer millions of pounds from their housing revenue accounts to their housing general funds in a move that has been questioned – even by the Department for Communities & Local Government.
It was surprising that the working party had difficulty in locating a copy of Circular 8/95. The purpose of this briefing paper is to reproduce the circular and to provide some commentary. It should be noted, however, that while the circular is still in force, it is over eighteen years old and so some references may be out of date. Please also note that the comments reflect Adrian Waite's personal interpretation of the guidance and anyone seeking definitive legal guidance should seek their own legal advice.
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