Quick guide: housing debt

The government intends to undertake a one-off redistribution of debt among the 202 councils in England, as it dismantles the Housing Revenue Account system.

That doesn’t sound fair. Why are they doing that?

Under the current HRA subsidy system, councils hand their rent and sales income over to the government which then redistributes the money, subsidising those councils which are in a lot of debt. The government also keeps a nice slice itself, this year standing at £300 million. So a lot of councils are losing millions of pounds in rent each year at the moment, and they don’t even have much of a debt to pay off.

That sounds even less fair. How much debt are we talking about?

The 148 English councils in debt are £17 billion in the red between them. Most of it is historic debt from borrowing money in decades gone by, for example to build homes – and this was sanctioned by the government. Other councils are in less debt because they may have been bailed out by house sales under right to buy, especially in higher value areas. The government made councils use receipts to clear their debts, meaning through no special choice they ended up relatively debt-free.

So how is the government going to deal with it?

This money will be redistributed among all 202 local authorities, which the government thinks will mean everyone has a manageable slice. Then they will be able to survive and maintain their own stock under a new self-financing model, where they will keep all their income from rents and sales.

Are councils happy with this?

On the whole they’re happier – experts say all councils will be better off than before because they’ll get to plan long-term and will lose a smaller amount each year. But the principle of paying off someone else’s debt may leave a bad taste in your mouth, and some have been calling for the government to write the debt off completely.

Well they did it with the banks, didn’t they?

This is different, the government says, and it’s rather strapped for cash at the moment, thank you. It argues that even though some councils wanted more from the deal, they will still be much better off under the new system and will have plenty of money to keep stock in a decent state. And Mr Healey said councils could even get more freedom to raise finance for building in the future – they’re still looking into that bit, though.

Sign me up. When does all this start?

Here’s the catch – not until the back end of next year, the government says. Apparently this kind of controversial, wide-ranging change means a long consultation process and a change in the law under primary legislation – which can’t happen before the next election. And even then, if the Conservatives get in, they might deal with the debt differently. So don’t hold your breath.

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