Man versus machine

New housing minister John Healey certainly isn’t a man to shy away from a challenge.

Less than a month into his new job, Mr Healey announced last week that he was going to roll up his sleeves and ‘dismantle’ the fiendishly complicated social housing subsidy system.

‘I want to provide more flexibility in finances and more transparency in the operation of the system,’ Mr Healey told Parliament.

‘I want to devolve control from central to local government and, in return, I want to increase local responsibility and accountability.’

It is a piece of work that will require him to do more than tinker with a few nuts and bolts.

There are few local authorities that will mourn the passing of the housing revenue account.

Many councils spent years campaigning for it to be scrapped as they handed rent money from their homes to the Treasury, which then redistributed it around England.

And not all of the money is returned to councils - the Treasury pocketed about £300 million in 2008/09, and is projected to siphon off another £6 billion by 2039 if the system is not reformed.

Dismantling an unpopular system might sound like a winner, but unfortunately for Mr Healey this is where the easy part ends. As he ponders where to begin, some large obstacles stand in his way.

Like all the best tradespeople, when faced with a major job Mr Healey’s first response appears to have been to scratch his head and tell his clients: ‘It’s going to cost you.’ This is because 148 of the 202 English councils collectively have £17 billion worth of housing debt, which leaves them reliant on the subsidy system.

Debt relief

The solution, according to Mr Healey, is the one-off redistribution of debt across all councils. After this point they will keep their income and the government will stop hanging on to the surplus.

While this may be Mr Healey’s answer it could also prove to be the spanner in the works.

Although councils are delighted with the possibility of forward planning on the basis of their own rental income, the redistribution of debt is causing them some worries.

The Local Government Association has already indicated that it wants councils’ housing debts to be written off.

The Conservative Party is also gearing up for a fight on this issue. Shadow housing minister Grant Shapps says he feels Tory councils could lose out more than most. ‘We have grave concerns over the suggestion that responsible councils should be punished for being prudent and be burdened with other people’s debt,’ he adds.

Steve Partridge, executive director at consultancy Housing Quality Network, says there are numerous reasons why councils have housing debts. Many are in debt because they were given permission to borrow for building programmes. Others are debt-free because of their right to buy income. ‘A lot of richer, rural districts have lower debt, not because they chose to but because they were forced to set aside 74 per cent of right to buy receipts,’ he says.

Mr Healey’s proposed changes would also bring huge benefits for most councils, Mr Partridge adds. ‘Everybody’s business plan will look instantaneously better as a result of self-financing.

‘It will be necessary for local authorities to understand what it will look like for their business plan.’

But how can £17 billion be fairly redistributed?

David Hall, a director at consultancy Tribal, helped draw up possible models for the Communities and Local Government department.

He says the government will set a formula to dictate what each council will get, based on a 30-year assessment of rental income and how much they can afford to borrow.

But doubts remain that there can be a fair solution for all. Waverley, a debt-free authority which loses £10.1 million a year in rents under the current HRA system, wants the government to write-off the debt. Mary Orton, chief executive at the council, says: ‘It is unfair to expect poor tenants in one area to pay for debt incurred decades ago in another part of the country under a defunct system.’

But Simon Latham, executive head of community living at Sutton Council, says the change will allow it to make a much ‘more modest’ payment than the current £9.7 million annual loss.

‘Realistically, we didn’t think the Treasury was likely to accept a debt write-off,’ he says. ‘The starting point [should be] to make sure there is adequate provision for maintenance of the stock then look at how a redistributed debt might apply.’

Another obstacle Mr Healey must negotiate is timing. The government has warned that primary legislation is needed, and change will not be possible before the next election.

Although there are powers already in place under the Housing and Regeneration Act for a local authority to depart from the HRA system, the government thinks more laws are needed for an en masse move to self-financing. The legislation must also wait until consultation is complete and the government has examined councils’ finances.

Mr Shapps warns that the Conservatives, if they win the next election, may prevent the change from happening anyway - and criticised the ‘very slow’ speed of the review which launched in 2007. He might support a combination of debt redistribution and government grant or debt write-off, he says, or perhaps change the formula for a full redistribution. But the options are hard to assess as he does not have access to government data, he adds.

‘I would try to make it as fair as possible, while appreciating that there will be problems in resolving this very messy system,’ Mr Shapps says.
Although councils may see the HRA’s death-knell as a reason to celebrate, there is still a long wait in store before they can be certain of their future.

Mr Healey has not yet provided detailed plans to dismantle the system, and local authorities will be anxious that this is contained in the promised consultation by 21 July. Councils must wait a little longer before they know how much maintenance work they face.

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