Rent rise reduction poses funding conundrum

Margaret Beckett’s announcement of a government u-turn on proposed local authority rent rises for the coming financial year was welcomed, but it does pose broader questions for the future funding of council housing. Mark Cantrell reports

Local authorities and campaign groups – and no doubt tenants themselves – might well have breathed a sigh of relief when housing minister Margaret Beckett announced a reduction in proposed rent rises last month, but for many there was doubtless also a moment of grim satisfaction at a battle won.

Back in September, when inflation was at a much higher level, the Government specified a guideline rent increase of 6.2 per cent for the 2009/10 financial year. The proposal sparked a flurry of lobbying from the council housing sector. The economic circumstance also continued to deteriorate, leading to Beckett’s announcement of a reduction of the guideline rent increase to 3.1 per cent.

“We are facing challenging economic times and it is right that this Government offers real help now to council tenants,” Beckett said. “We have listened to what councils and their tenants have said to us about the planned rent increases, and we are determined to help tenants get a fairer deal. Ultimately, it is for each council to take up this offer of support, but I would expect them to ensure their tenants receive the full benefits.”

The Government will make funds available to help local authorities make the necessary changes, she said. Furthermore, she will look at the rent increases for the 2010/11 financial year to “ensure that council tenants continue to pay rents that are fair and affordable”.

The reduction in the guideline rent increase means tenants should see a marked drop in their proposed average rent increase from around £4 per week to just under £2, the DCLG said. That might not sound like much, but as everyone knows, every penny counts, especially in times of hardship. Of course, that works both ways; money is tighter for the landlord too, these days. And that has caused the rent issue to touch upon deeper sources of concern over the ongoing funding of the council housing sector.

The reduction in recommended rent increases was naturally welcomed by the council housing sector, as well as campaigning bodies active there, but it inevitably raised questions about the ongoing funding of the sector – especially in light of the Housing Revenue Account subsidy system, currently under review.

“Councils will be encouraged that the Government has listened to their concerns and decided that imposing large rent increases would be unfair on tenants in the current economic climate. It is pleasing that the Government has recognised people are feeling the pinch and will not be pushing through a six per cent rise,” said Councillor Margaret Eaton, chair of the Local Government Association (LGA).

“This episode illustrates the glaring need to reform the way council housing is funded. One solution to the perennial problem of funding would be to allow councils to keep all the money their tenants pay in rent. The Treasury is set to take away £300 million in a single year from councils, and this is money that would be better spent locally providing the best possible housing for local people.”

Gareth Swarbrick, chief executive of ALMO Rochdale Boroughwide Housing (RBH) said: “We welcome the Government’s decision to halve the national average guideline rent increase to 3.1 per cent and the clear intention of both RBH and Rochdale Council is to pass this on in full to tenants However, due to the delay of the announcement, we had already notified them of the higher increase. The lack of clarity from the DCLG on how the announced change will work in practice has not been helpful to us nor tenants.”

Fellow ALMO Salix Homes, Salford, also welcomed the u-turn on rents. The council’s leader Councillor John Merry said: “We have been lobbying ministers to reconsider the rules by which rents are set to help tenants through this tough economic climate and we’re pleased they have listened.”

However, housing associations are in something of a “no-win situation” according to Judith Winterbourne, managing director of Contour Homes, showing that not everyone has reason to be enthused by Beckett’s latest announcement.

“We have a responsibility to ensure that in these hard economic times we are not adding to the financial burden of our residents, but equally we must remain financially viable businesses,” Winterbourne added. “We must also have an eye to next year when interest rates are predicted to be a lot lower and therefore there could be very little increase in rents if any. However, it would help all of us working in the social housing sector if government ensured consistent rents for all residents, regardless of who their provider is.”

The Defend Council Housing Campaign (DCH) declared the reduced rise as a “step in the right direction” but accused the Government of continuing to “profit” from council housing, thanks to the funding mechanisms in place.

Shortly before his untimely death from a heart attack, the organisation’s chair, Alan Walter said: “It’s good to see a minister that listens and this is a step in the right direction, but this announcement still means that government will be making a big profit from council tenants in 2009/10 and many authorities will be short of money to manage, maintain, repair and improve their homes, and that is just not acceptable.

“The ‘robbery’ has to stop once and for all – including the scam of continuing to charge tenants to support historic debt that should have been paid off several times over. We don’t have a financial interest in the asset and they’ve had more than enough receipts to pay it off years ago. The Government’s Review of Council Housing Finance must accept that every penny of our rents is spent on the management, maintenance, repair and improvement of council homes. This would support funding allowances to authorities at ‘level of need’.”

Campaigners in the London Borough of Sutton are also resistant to the so-called ‘negative subsidy system’ operating under the current Housing Revenue Account system, and are resentful that £10 million a year of the council tenants’ rent money it says is siphoned off to the Treasury. This informed and added fire to the borough’s lobbying against the original proposed rent rises.

“This is a real victory for Sutton residents,” said council leader Councillor Sean Brennan. “The Government has backed down and listened to us. Next we want the Government to think again on the whole unfair system of using tenants’ rents to subsidise housing improvement elsewhere.”

The London Borough of Newham’s elected Mayor, Sir Robin Wales applauded the Government for listening to what the council – and others local authorities – had to say over the issue and then taking action.

“Newham has many council tenants and we have already frozen council tax to help them. I am pleased councils have had their voices heard and the housing minister Margaret Beckett has taken exceptional action to help council tenants this year,” he said.

“The Government knows that council tenants are being hit hard by the recession. They are not fat cat bankers with multi-million pound pensions to rely on; these are real people who, when times are hard, look to councils and the Government to give them a helping hand.”