Councils face £25bn charge for financial freedom

Housing minister John Healey said authorities would get to keep all of their rents and sales receipts in exchange for taking a portion of the debt.

At present councils hand all of their surpluses to Whitehall which are redistributed around local authorities with the Treasury retaining a sum. The annual surpluses for 2010/11 and 2011/12 will be £340 million.

Speaking ahead of the launch of today’s consultation to reform the council housing finance system Mr Healey said the reforms would allow councils to build 10,000 homes a year by 2014/15. That figure is additional to the 4,000 homes built with government grant through the local authority new build programme.

‘It is highly technical but it is not simply an administrative change in the financial system. This radical reform will change people’s lives. I see council housing as a central support for people in this country.’

John Healey

Hailing the deal as a ‘once in a generation chance for change in local government’, he said the proposed settlement would allow councils enough headroom to borrow to fund building.

However, there would be a cap on how much they could borrow. Councils will only be allowed to borrow up to the level of the settlement, although Mr Healey said this was set at a level to make borrowing possible without forcing up overall public sector borrowing.

The consultation will not deal with the repairs backlog. Mr Healey said this was a ‘central priority’ for a future spending review. He said the deal would guarantee that homes which had already reached the decent homes standard would be maintained to at least the same level in future.

Mr Healey said the reformed system would provide more than £500 million more for councils to manage their housing meaning that all of the 177 councils in the system will get at least a 10 per cent increase in their total allowances under the settlement. The average increase is expected to be more than 11 per cent.

Further details of the consultation will be available later today. The consultation deadline is 6 July.

The debt for redistribution is made up of £21.5 billion, which will be the value of the debt held by council’s housing departments in April 2011 when the new system could begin, and an additional £3.6 billion of central government debt which is transferred to councils to make the deal fiscally neutral for central and local government.

The £21.5 billion of debt will be distributed around councils by working out the value of their housing businesses, including their income and spending requirements, and how much debt they could afford to support. Some councils may end up with less debt than they currently have while others may take on more. The £3.6 billion was arrived at by subtracting the £21.5 billion of debt from the £25 billion collective value of council’s housing businesses and would also be distributed in line with the value of council’s housing businesses and the amount of debt they could carry.

Mr Healey said that voluntary deal could take place if the proposals have ‘broad support’ with councils leaving the current subsidy system in April 2011. But if the deal was not widely backed then legislation would be required which would mean implementation of the reform would be delayed by at least one year. But he could not say how many councils would need to agree to the deal for a voluntary agreement to go ahead. He said local government had lobbied for financial reform and ‘this has put the ball firmly in their court’.

He added: ‘It is highly technical but it is not simply an administrative change in the financial system. This radical reform will change people’s lives. I see council housing as a central support for people in this country. It provides secure homes for some of the most vulnerable people and secure, affordable homes for hard working people who can’t afford to buy a home of their own. The way these homes are paid for and maintained needs to be fair and affordable for the future and this deal secures that.’

The Chartered Institute of Housing welcomed the ‘long overdue commitment to new council housing building’ but warned grant should be available to support the work, and improvements to existing homes should continue.

It also called for a review of public borrowing for housing. Director of financial policy Steve Partridge said: ‘We continue to call for future investment in council housing to be treated differently from other government borrowing, in line with European rules.’

Have your say

You must sign in to make a comment