Scottish Public Finance Manual

The Scottish Public Finance Manual (SPFM) is issued by the Scottish Ministers to provide guidance on the proper handling and reporting of public funds.

Annex: Housing Revenue Account

General principles

1. Income and expenditure in relation to a local authority's own direct provision of housing must be recorded separately within a Housing Revenue Account (HRA) as laid out in Section 203 of the Housing (Scotland) Act 1987. In general terms, a HRA in Scotland is a separate account within the General Fund of a local authority. Schedule 15 to the 1987 Act details the income and expenditure which is to be charged to the HRA. The main items of income and expenditure for an HRA are:

  • rental income from houses (and other HRA assets);
  • income from the investment of HRA money (whether cash balances or monies received from the sale of HRA property);
  • expenditure on managing, maintaining, repairing and improving the council housing stock; and
  • expenditure on debt (loan charges) relating to amounts borrowed to fund capital expenditure on HRA properties (existing or new).
  •  An estimated debit or credit should be made where the actual cost or income is not known (accrual accounting is required in line with proper accounting practices.

2. The expenditure items that should not be debited to the HRA include

  • provision of shops, laundry facilities and furniture (though provision of garages and some other tenancy facilities can be debited);
  • any expenditure which exceeds the expenditure required for the provision of the service to tenants.

3. A local authority is required to estimate, annually, the amounts to be debited or credited to the account (a requirement to set a budget). These estimates are returned to Scottish Government and published annually.

4. Whilst not specifically required by the legislation, it is implied that a HRA in Scotland is self-financing, that is the budgeted income is sufficient to cover budgeted expenditure. The legislation permits a Council to transfer, any actual HRA surpluses to the General Fund. However, they are not permitted to budget for a transfer of funds from the General Fund to the HRA. The HRA is also not permitted to show a deficit at the end of the financial year. If this occurs, authorities are required to transfer funds from the General Fund to cover this deficit. 

Scottish Ministers’ involvement in the operation of HRAs

5. There are a number of powers that have been in place since 1987. Schedule 15 of the 1987 Act states that local authorities may, with the consent of Scottish Ministers, exclude from the HRA any items of income or expenditure or may, again with such consent, include any items of income or expenditure.

6. If the HRA has been improperly credited or debited, Scottish Ministers, may, after consultation with the local authority concerned, give directions for the appropriate credits or debits to be made to rectify the Account.

7. Since April 2010 no limits have been set on contributions from the General Fund to the HRA though any such a contribution would require the consent of Scottish Ministers under paragraph 2(5) of schedule 15 to the 1987 Act.

8. Most disposals of land, buildings or any other assets from the HRA irrespective of size or value require the consent of Scottish Ministers principally under section or 12(7) of the 1987 Act. This requirement is in addition to the requirements of the Disposal of Land by Local Authorities (Scotland) Regulations 2010 (SSI 2010/160) on disposals of land for less than best consideration, in other words where such a disposal is envisaged for HRA land, the local authority must both follow the procedures in the Regulations and obtain Ministerial consent.

9. Guidance, finalised in October 2012, for local authorities on applying to Scottish Ministers for consent when disposing of HRA assets (or transferring assets between HRA and General Services Account under section 203(2)) is available here: 

Letter to Council Directors of Housing and Finance

Guidance on new procedures for applying for HRA consent

Application form for HRA consent

The Guidance contains a standard application form to be completed for each asset being transferred. The information required by the application form for disposing of small plots of garden ground is minimal compared to more substantial tracts of land or for buildings.

When a separate HRA is no longer required to be kept

10. Currently there are 26 HRAs in Scotland. There have been 7 Council whole stock transfers to Registered Social Landlords since 1996. This effectively ends the local authority role as a direct provider of housing for rent though it still has numerous strategic roles to play regarding the social rented sector in its area. In consequence of the transfer of the local authority stock, each transferring council is no longer required to keep an HRA, in terms of Scottish Statutory Instruments made under section 94 of the Housing (Scotland) Act 2001.

Control and funding of HRA capital expenditure

11. The Local Government in Scotland Act 2003 places a local authority under a statutory duty to determine the amount they can afford to allocate to capital expenditure. In doing so they are required to have regard to the Prudential Code issued by The Chartered Institute of Public Finance and Accountancy (CIPFA). This requirement is contained in SSI 2004/29, the Local Authority Capital Expenditure Limits (Scotland) Regulations 2004). The Prudential Code requires that the capital investment plans of the local authority are affordable, prudent and sustainable. Thus, local authorities make their own decisions about how much they can afford to borrow to support capital expenditure plans. Scottish Ministers have statutory powers (section 36 of the 2003 Act) to impose capital expenditure limits either at the 'all Scotland' level or for a particular local authority, and including for different types of capital expenditure. As at September 2013, Ministers have not used this power.

12. In addition to borrowing, councils have raised substantial amounts of money to fund capital expenditure plans from the sale of council property. This has included the sale of houses to sitting tenants, through the voluntary sale of land or other HRA assets to third parties, or via an asset transfer from the HRA to the General Fund (as outlined in paragraph 8). However, HRA capital receipts have declined substantially (by about 80%) since 2005-6 due primarily to numerous and gradual changes in Right-to-Buy (RTB) legislation dating back many years and also because of factors in the wider Scottish housing market.

13. Most of the 26 Scottish councils with an HRA include, as part of the annual budgeted expenditure for the HRA, an amount for funding capital investment. This keeps investment in the council stock higher than it would otherwise be and can be argued to reflect both a council’s policy on rent levels and the efficiency of the administration of the housing account. Being able to budget to support capital investment in this way requires rental (and other HRA) income to exceed the annual running costs expenditure. 

14. Total (or 'gross') HRA capital expenditure is therefore usually funded in one of four ways:

  • from borrowing, currently the largest source of funds for capital investment of HRAs at Scottish level;
  • from the annual HRA revenue budget. This is commonly referred to as Capital Funded from Current Revenue (CFCR), the second largest source of capital funding at Scottish level; and
  • capital receipts (from the sale of council houses to sitting tenants, and also the voluntary sale of land and buildings and other HRA assets), currently the third largest element of funding for HRA capital investment;
  • grants from the Scottish Government or other bodies - currently the smallest element of HRA funding

15. ‘Gross’ HRA capital expenditure is the total level of capital investment in the local authority housing stock, which includes not only expenditure on the existing stock but also any capital expenditure incurred on new council housing. Statistics can be found here on total council housing capital expenditure in Scotland.

16. Local authority landlords in Scotland are free to build new council housing, and the Right to Buy was ended in 2016. The Scottish Government has, since 2009, also been incentivising councils to build new council housing by providing capital grants towards part of the capital cost of the new housing. However, before any Council is able to make this investment in new housing they are under a duty to ensure that any such capital investment is affordable, prudent and sustainable. Therefore, consideration has to be given to any future costs (i.e. if the investment is funded from borrowing) being able to be met from future HRA income streams. In addition, since 2004, much of the capital spend on existing HRA properties has been focused on meeting the 55 elements of the Scottish Housing Quality Standard (SHQS) which are require to be met by all social landlords in Scotland by April 2015.

17. Detailed guidance on what this Standard means for local authorities and their tenants whose rents are paid into the HRA can be found there. Progress by local authority landlords to meet the Standard is measured by the Scottish House Condition Survey and is monitored by the Scottish Housing Regulator as part of its duties under the Social Housing Charter which took effect from April 2012.


Updated: December 2018

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