New deal for social housing

The death knell was sounded for the Housing Revenue Account (HRA) subsidy system when the Government announced the new “self-financing” system for council housing

The Chartered Institute of Housing (CIH ) welcomed the Government’s announcement that the “archaic and unfair” council housing finance system is finally being dismantled to pave the way for a new programme of council house building and improvements.

The detail of the settlement for local authorities in England is yet to be fully examined, but CIH says it is confident that Housing Minister John Healey’s offer will be firm enough to allow councils to make better, more locally-based and longer-term decisions about the upkeep of existing homes as well as leading to the building of significant numbers of new homes in their areas.

Under the new self-financing system councils will keep all the rent they collect from their homes and all the receipts from any sales of houses or land, according to the Department of Communities & Local Government (DCLG ). “Not a single penny will go to W hitehall and not a single penny will subsidise other councils as the current system dictates”, it added. In return councils will be expected to accept a share of an additional £3.65 billion debt, but the DCLG said that no council will take on a level of debt that is “not sustainable for the long term”.

The deal will release at least 10 per cent more money in every council for maintaining and managing their homes, it is said, and it will create the funding capacity to build over 10,000 new council homes a year. “This is a once and for all settlement between central and local government,” said the Housing Minister when making the announcement.

“It will bring council house funding up to date – replacing a system which was introduced before the Second World War. Councils will get the freedom to fund and run their council homes, without central Government subsidy. Not a single penny from rents or sales will go to Whitehall and not a single penny will subsidise other councils as the current system dictates.

“The deal will release at least 10 per cent more money in every council for maintaining and managing their homes. And it will create the funding capacity to build over 10,000 new council homes a year. Above all it will mean four million tenants living in 1.8 million homes will get better homes and better housing services from their council. “This is a change which councils have been calling for, and which has cross party support. This is an opportunity for radical change which will allow councils to do much more to provide better services and better meet the needs of local people.”

CIH has campaigned for more than five years to see the Housing Revenue Account replaced with a fairer system of self-financing and has therefore welcomed the Government’s commitment to allow councils in England to keep council house rents and proceeds from all sales to invest in building new homes.

However, the organisation cautioned that if grant is not available to support the work, investment in new build will be limited significantly in the early years, given the restrictions on borrowing for local authorities that are still in place.

CIH also warns that the focus on new build must not be at the expense of investment in existing housing stock, completing the overdue Decent Homes programme and improving environmental efficiency.

Sarah Webb, chief executive said: “We are delighted at the Government’s clear commitment to new council house building and are also very pleased that our work to help shape a new self-financing future for councils has been taken on board. We are calling on the Government to honour its commitments to existing tenants and communities and also ensure that sufficient capital finance is available to get the existing council housing stock and estates up to a standard where they are all attractive places to live. Key elements of today’s announcements are subject to confirmation in the next Comprehensive Spending Review in the autumn.”

CIH has also called for a review of borrowing for public housing as this could lead to more fundamental changes in enabling the full use of existing housing assets.

Steve Partridge, director of financial policy at CIH added: “While we recognise that the Treasury wishes to control the level of councils’ borrowing, especially given the current spending pressures, we continue to call for future investment in council housing to be treated differently from other Government borrowing, in line with European rules. This would give councils the same freedom as housing associations to borrow to invest in what is one of the country’s greatest assets and an important legacy to the nation.”