Councils voice fears over HRA debt plans
Councils have welcomed plans to dismantle the housing revenue account subsidy system but voiced concerns over the levels of debt they will be hit with.
Housing minister John Healey yesterday announced plans to scrap the HRA subsidy system, under which central government collects housing revenue from councils and then redistributes the funding, and replace it with a self-financing model where local authorities keep all revenue from rents and sales of their properties.
In return, they will have to take a share of more than £25 billion of debt. This is made up of £21.5 billion, which is the value of the debt that will be held by council housing departments in April 2011 when the new scheme could begin, plus an extra £3.6 billion to ensure the scheme is fiscally neutral.
Mr Healey said councils would be able to borrow to fund building, allowing them to produce 10,000 homes a year by 2014/15.
He added that a new system could be introduced from April 2011, if it has voluntary support from councils, but the process would take longer if legislation is required.
The Local Government Association said its initial response to the complex proposals was that it is pleased the government has produced plans for reform, but careful analysis of the detail is required.
However some individual local authorities were less positive. The largest, Birmingham, said it was concerned by the proposals on debt.
John Lines, cabinet member for housing, said: ‘Sadly, I’m not convinced by Mr Healey’s deal because we will still be saddled with extra debt which is £3.65 billion nationally.
‘This equates to £2,000 per property nationally if it was shared equally and frankly this just isn’t good enough.
‘I’m disappointed that the new proposed settlement involves a sharing of extra debt, which is something Birmingham could certainly do without in the recession.’
Other bodies gave a mixed response.
Gareth Swarbrick, chief executive of arm’s-length management association Rochdale Boroughwide Housing, said: ‘For us, the critical issue will not just be the amount of debt we will take on - but whether or not we will have the scope to borrow the amount we need for the critical investment our neighbourhoods require using the headroom in our business plan we will create from delivering efficiencies.’
The Local Government information Unit welcomed the news, but was also concerned by the plans on debt.
Chief executive Andy Sawford said: ‘Reform of the subsidy system is a major step in the right direction, now the government should allow councils to take payment holidays from these massive loans which would enable them to pay off debt in 25 years.’
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Readers' comments (5)
alex kendall | 26/03/2010 11:57 am
Rents will rise to pay for this end game Mr healey!!!
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Dave Hollins | 26/03/2010 2:49 pm
So Mr Lines, Tory Councillor from Birmingham, says sharing the debt isn't good enough. So do we read this to mean that the Tories will write off some or all of the debt or put extra funding into council housing? Has Mr Lines cleared this with George Osbourne? Can we please be told where the extra would come from under this Tory policy?
John Healey has done a great job coming up with this plan to dismantle the current system, which is very unpopular with everyione. Cllr Lines' party has also called for the existing scheme to be scrapped, now he's against the alternative as well. Make your mind up!
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Max | 26/03/2010 7:27 pm
Here are some real numbers that John Lines appears to have missed in his briefing.
(1) Birmingham City Council's lending has risen recently under the ruling administration to £2.4b. For information that equates to nearly £2000 per person living in the City. (So what is a little extra £2000 per property in comparison?)
(2) Almost 45 per cent of the housing revenue budget is being diverted to service loans.
(3) I am not sure what the debt on BCC Council housing is but over hanging debt was in the region of £650m a few years ago. Therefore any redistribution will obviously benefit a city like Birmingham surely?
What exactly are your proposals John and tell us how you are going to fund them?
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Martin Ballard | 06/04/2010 10:32 am
A great idea but as expected and feared comes laced with heavy price tag burden. The additional £3.65 Billion is an unnecessary problem and appears to be the opportunistic work of the accountants at Whitehall. Has for instance the decades of Right to Buy creaming off @ 75% by government been deducted from the "housing debt" - I suspect not, that's just a nice little earner. If Mr Healey is serious about the long-term future of council housing he would not still be sanctioning privatisation ballots in six areas and would show at least some interest in the question marks hanging over the Merton ballot result where tenants were fooled by council misinformation.
If you want the bird to fly don't clip its wings.
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SDS PLAN | 13/04/2010 0:14 am
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