Between a rock and a hard place

The deafening noise they have created has all but drowned out alarm bells sounding for authorities that could lose out should the system change.

Amid all this hubbub there is general agreement that the subsidy system as it stands needs to be overhauled. A government review could see it scrapped or dramatically shaken up.

Councils that lose out under the current system argue that the regime had effectively become a tax on tenants’ rents, because more money is paid into Treasury coffers via rents than it pays back out again. Some authorities also oppose the way the system pools tenants’ rents for redistribution to other parts of the country. These councils have won powerful backing. Last month, the Local Government Association published a paper, endorsed by the Chartered Institute of Housing, stating that the ‘in-built redistribution of subsidy within the current system is unfair and unjust’.

Councils that benefit from that redistribution are now waking up to the fact that if they lose out, it could mean big rent rises for tenants and less money to maintain their homes.

And this is not small change. Some authorities receive tens of millions of pounds’ worth of subsidies every year. One proposal being examined would see some councils leave the subsidy system entirely. A report published by the team carrying out the government’s review made the danger of this explicit.

‘There are likely to be winners and losers, and an element of rough justice would seem inevitable,’ the report states.

John Perry, policy advisor at the Chartered Institute of Housing, said the LGA paper was an ‘initial statement of principles for a fair and effective system of council housing finance. CIH’s submission (which will not be joint with other organisations) will emphasise the crucial importance of tackling historical debt – the main cause of problems for the council housing finance system.’

The finance system was unfair to councils in both positive and negative subsidy, he added.

Terry Stacy, deputy leader of Islington Council, which is set to receive more than £45 million in subsidies this year, told Inside Housing that many councils were in an extremely difficult position.

A national problem

‘Boroughs like Islington are caught between a rock and a hard place,’ he said.

‘There is no doubt that the system needs to be reformed and reformed substantially but on the other hand there is good reason why Islington receives the large amount of subsidy it does, based on history and the condition of its homes.’

The north London authority plans to arrange a meeting of people who benefit from the current system. There should be a national debate about how money is moved between councils, Mr Stacy added.

A source from another council, which benefits from the current system said authorities which argued against the redistribution of rents were ‘utterly parochial and shortsighted’.

‘I’m sure that [the end of redistribution] would be lovely in leafy Surrey but it does create a bit of a national problem,’ he said.

‘The authorities who have built up a significant amount of stock over a number of years and who are bearing historic debt and have high costs because they are housing poor people in flats need to be heard.’

Chris Naylor, executive member for housing strategy at Camden Council, has another solution. ‘The subsidy goes straight out to meet debt charges that government has allocated to us. There is an easy answer for government – if it is withdrawing our subsidy it should write off our debts too.’

Others are turning their attention to whether or not councils should be allowed to opt out of the system at all. Pressure group Defend Council Housing thinks not. ‘If allowances are funded at the level of need, and that should be the issue we are fighting for, then actually it makes more sense for us to do that within a national system,’ said chair Alan Walter.

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