Freedom comes at a high price

But there are some questions to be asked, which seem to have been ignored by those councils which rejoice in this new-found freedom, without counting the cost.

If the current system is not fit for purpose, why is the new system based on the same basic assumptions? If the current system is not fit for purpose, why are councils told to assume that it will continue for those who do not accept new proposals? If it does continue, will the changes introduced to the parameters in the new proposal be applied?

We are told that the debt to be imposed on councils will be only at the level that is ‘sustainable’. But the sustainability is calculated on a ‘social rents policy’ that requires an above inflation (0.5 per cent above inflation each year) rent increase each year for the next 30 years.

Therefore, the income side of councils’ business plan is largely fixed and out of any council’s control.

What then about the expenditure side? Clearly the interest on the debt that is allocated to each council is a major factor. This is also affected by the total level of debt to be redistributed. Astonishingly, we find that this is about £7 billion pounds more than the actual level of current debt.

We must, therefore, realise that the entire exercise is a zero sum game, so there will be winners and losers, with the winners rushing to accept. The losers may then be legislated to accept.

But what of the interest? Clearly councils which have run up the debts that are now being reallocated to councils which did not, have much experience of managing the interest rate risk. No doubt debt-free councils will acquire that expertise, but at what cost?

In Waverley, we have been debt-free for some time - indeed there was a time when we were rewarded for such prudence - but we are now being allocated £173 million of debt for fewer than 5,000 homes.

Finally, I believe our tenants will find themselves badly deceived.

Up to recently, a stock transfer would have left a council such as Waverley with a dowry to spend on new housing based on the tenanted market value of the homes (about £50 million, of which £10 million would have been paid to the government), and the receiving social landlord with debt of the £50 million plus the necessary investment in the homes, perhaps a further £20 million and with the right to spend all the income on the homes in future.

Nobody told the tenants that the alternative was for a debt of £173 million to be placed upon their homes, the interest and repayment of which is the first charge before any improvements or running costs. Perhaps they would have voted differently if they had known.

Richard Gates, leader, Waverley Council