Plans to revitalise the right to buy could cost £2.5 billion in lost revenue
Council finance reform under threat
Councils could be saddled with millions of pounds of extra debt as a result of government attempts to revive the right to buy, sector experts have warned.
Prime minister David Cameron this week pledged to raise discounts available to council tenants who want to buy their homes and called for 100,000 sales.
The policy would see sold stock replaced with new social homes at ‘affordable’ rents at up to 80 per cent of market rates.
But disgruntled councils, yet to be told the details of the proposals, warned that low assumptions about the percentage of right to buy sales used to calculate their debt settlements as part of the government’s housing revenue account reforms could leave them substantially out of pocket and the reforms unworkable.
Calculations by David Hall, a director at housing consultancy Sector, show the lost revenue would equate to £2.5 billion more than current compensation if tenant take-up levels match those of the past 30 years. Of the stock available in 1980, 30 per cent has been sold under right to buy.
Peter Jarman, managing director at Carrick Housing, Cornwall Council’s arm’s-length management organisation admitted ‘there is a possibility that we will need to renegotiate settlements’.
Under the HRA reforms, the Treasury will retain 75 per cent of future receipts from right to buy sales but will adjust HRA debt settlements to reflect the loss of future rental income.
The current debt settlements assume that just 8 per cent of existing stock would be sold over the next 30 years, meaning councils were compensated to the tune of £850 million for loss of rent.
‘The effects of this could be detrimental to local authorities in terms of their settlements,’ said Mr Hall. ‘Local authorities should be looking to reduce their debt burdens.’
The government has denied that the policy would have an impact on HRA reforms.
However at a Conservative Party conference fringe meeting, housing minister Grant Shapps said some of the money generated would be used to repay debt to protect HRA allocations.
The move has left councils in the dark about what will happen to their right to buy receipts and, with just five months to go before the reforms come into effect, uncertain about their debt allocations.
‘Replacing one unit with another doesn’t seem to add up,’ said Ken Jones, director of housing strategy at Barking and Dagenham Council. ‘Presumably they will say councils can keep 100 per cent of receipts. But we don’t know yet.’
Jake Berry, an aide to Mr Shapps, said the Treasury wouldn’t retain 75 per cent of receipts, as first intended - but didn’t say which body will control the spending of the receipts.
Communities and Local Government department officials attended a hastily arranged meeting yesterday with councils to discuss the impact of the proposals.