Public & private

On 1 April, councils were given the right to borrow more money for capital purposes – providing they can afford to service the debt. These arrangements need to comply with the prudential code.

To qualify, councils have to calculate a suite of prudential indicators for the last financial year's figures and for the following three years' budgetary estimates. Part of this will apply to housing authorities and will cover:

• a percentage ratio of financing costs to net revenue of the housing revenue account
  
• housing capital expenditure actuals or estimates
  
• the marginal effect of different housing capital programmes on average weekly rents
  
• the HRA capital financing requirement.

The ratio of financing costs to the HRA net revenue shows the proportion of revenue resources used for financing borrowing and/or leasing of the housing capital programme.

The HRA capital financing requirement can be broadly defined as that element of an authority's housing capital programme that needs to be financed from borrowing and/or leasing. The cost of this element will fall on the HRA and the housing authority will need to estimate the degree of housing subsidy it will receive to support that cost.

Local authorities will need to identify actual housing capital expenditure for the previous financial year and also estimate housing capital expenditure for future years. This process will feed into the capital investment plans of the whole authority. Current and future housing capital expenditure will be related to each authority's repairs backlog and the progress it needs to make towards the decent homes standard.

It is vital that the role and understanding of housing authority members is developed

However, the most challenging indicator for housing authorities has been the marginal effect of different housing capital options on average weekly rents. Given the fact that rent reform plays such a strong role in determining the level of future housing rents, many authorities have taken the view that their housing programmes will have a negligible effect on these average rents.

Some authorities are planning to take advantage of the new freedoms to borrow for the HRA. Birmingham is planning to raise an extra £15m in 2004/5 to help it meet the decent homes standard. It has set aside £1.6m to pay for the loan in 2004/5 – affordable because under rent restructuring, rents on its 80,000 properties will rise by some £2.50 a week from October.

Housing authorities will have to gain approval from members about the level of indicators they propose. Performance against indicator limits will need to be monitored and periodically reported to members so they can decide whether indicators need revision or corrective action. It is therefore vital that the role and understanding of housing members is developed to ensure they are able to play an active role in this new process.