Councils: give us reform guarantee

A snap survey of 12 councils’ responses to a consultation on abolishing the £17 billion housing revenue account revealed that all were in favour of the change.

The news came as housing minister Grant Shapps said the government would continue with the consultation on housing finance reform released under Labour. The consultation closes on 6 July, after which the government will decide whether to take it forward in full or part, or whether to consider an alternative model.

Eight of the councils said they would be ready to start the new self-financing system in April 2011. The most common concern was the possibility of the government changing the terms of the settlement in future. Several councils, including Wigan, said the government must be clear about the circumstances under which this could happen. Councils also wanted several other problems in the proposal to be resolved.

Other difficulties included understating the level of private finance initiative credits, which increases the amount of debt councils are deemed capable of taking on, and councils only being allowed to borrow up to the opening level of debt they carry, which Wigan, Leeds, Newcastle and Charnwood said ran contrary to the spirit of the prudential code, which governs council borrowing.

Wigan, Luton and Ashford councils also questioned whether interest rates would rise temporarily if a large number of councils had to borrow simultaneously in order to take on the extra debt proposed in the settlement.

One authority, Cambridge, said the additional money collected by government from councils should be set aside to pay for the backlog of repairs.
But several councils said they would remain solvent under self-financing but would go into the red in the current subsidy system without cuts.

Leeds, Uttlesford and Wigan mentioned that proposals to split HRA and general fund debt could mean the general fund is hit with charges which the government would not refund. This is because the council might need to refinance private, rather than public, debt to balance out the range of debts and maturities in its portfolio. The government has not yet said whether it would reimburse the breakage costs on private debt, and the additional administration of managing two loan books.

Ken Lee, director of resources at Wigan and Leigh Housing, said: ‘We have some worries about way they split debt between general fund and HRA that could cause issues for the general fund.’

Have your say

You must sign in to make a comment