Ever since self-financing was introduced in 2012 I have been warning that the system includes a well concealed ‘time-bomb’ in the form of the arrangements for valuation, depreciation and impairment that it is envisaged will come into being when the transitional period comes to an end in 2017. Now some councils are beginning to realise the threat to their finances and to their development programmes.
This briefing paper considers these problems in some detail and includes sections on:
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This is a rather technical accounting issue but it could cost councils and their tenants millions so I will try to explain it in relatively simple terms. The problem is that when councils reduce the value of their housing stock on the balance sheet either to reflect depreciation (the planned write down of asset values over time) or impairment (the immediate write down of asset values when something happens) they make an equivalent charge to the housing revenue account. However, before self-financing was introduced, and during the transitional period until 2017, councils are able to ‘reverse’ this charge so that it is not a real cost to the housing revenue account and to tenants. After 2017 they will not be able to do this and the depreciation and impairment charges will become real costs.
Furthermore, problems already exist with the treatment of non-dwelling assets, and problems are already looming for authorities that are building new housing where the schemes may complete after March 2017.