Councils to be put in charge of housing finance
Control over the financing of council housing is to be devolved from central government to local authorities, under plans being developed by the government.
Housing minister John Healey has announced in a written statement to Parliament that his intention is to scrap the existing housing revenue account subsidy system, and give local authorities control over their own finances.
Under the current system money generated by local authorities by renting and selling council-owned homes is pooled by central government and then redistributed. The new system being proposed by Mr Healey would radically change this.
The government has not published its proposals in full. It intends to issue a full consultation document before Parliament begins its summer break on 21 July, but the statement given by Mr Healey sets out the principles that will guide reform.
In it he says the government will propose ‘a devolved self financing alternative to the current system’.
‘With these reforms, councils would finance their own businesses from their own rents, in exchange for a one-off redistribution of housing debt,’ he says.
Mr Healey goes on to say that there is also a ‘strong case’ for allowing councils to keep the money they get through selling homes. ‘The consultation document will therefore set out proposals to end the pooling of capital receipts,’ he states.
He says change is needed because although there is a ‘clear rationale’ to the current system it also has ‘significant drawbacks’. The new system will be designed to ‘increase local responsibility and accountability’.
A complete overhaul of the system is likely to take time, however. ‘Change on this scale is complex and will require primary legislation,’ Mr Healey says. ‘A fully self financing locally devolved system cannot be implemented in a single step.’
One of the major hurdles will be adjusting housing debt. At present around £17 billion of housing debt, which costs around £1.1 billion a year to service, is split across 202 councils. The new system would require local authorities to manage and fund this debt.
The government is, however, introducing some immediate changes. All new homes built by local authorities will be exempt from the current subsidy system, meaning councils will be able to keep all the rents and any revenue from sales of these properties.
Although councils build relatively few homes, the government is encouraging them to get back into house building. Earlier this week the prime minister Gordon Brown announced a £1.5 billion house building fund, which includes £250 million to get local authorities to build 3,000 homes over two years. This is on top of £100m for the same purpose, which was announced in the Budget in April.
The Chartered Institute of Housing welcomed the proposal to scrap the HRA subsidy system. Chief executive Sarah Webb said: ‘We are delighted that the government has responded so positively to our calls to abandon this archaic and unfair system which has done nothing to help councils deliver quality services or plan their budgets over several years.’
She added that self financing would allow councils to ‘make better and more locally-based decisions about the upkeep of existing homes and the building of new homes in their area’, but warned ‘if councils are to manage their own housing stock to the best advantage of local people, they will need new skills in long-term business planning’.
Read John Healey’s statement in full
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Readers' comments (4)
michaelbarratt council tenant | 01/07/2009 1:53 pm
I believe that what Mr Healey and his colleagues have in mind is for DEBT FREE COUNCILS such as my landlord Crawley Borough Council to pay some exorbitant capital sum in order to be ‘freed’ from the Housing Revenue Account system. A previous treasurer of CBC assured me the Borough had over the years paid in full to the Housing Commission/Central government, either in cash or kind for the housing stock. This outlined proposal of Mr Healey & Co is not dissimilar to the Halifax demanding that homeowners continue to pay them long after their mortgage had been discharged and would only release them from future payments of a large ex-gratia capital sum. The Department for Communities and Local Government usual ‘cut and paste’ response to accusations of holding councils to ransom is that council housing collectively is a National asset. If that were the case then successive National governments have overall financial responsibility for the past mismanagement of the Nation’s council housing stock and should find a financial solution that does not continue to plunder otherwise viable local authorities and threaten the future of their housing stocks.
In the event the DCLG insisting on debt free councils paying a capital premium to be free of the HRA system then the sum paid to Central government should surely not exceed the transfer valuation placed on a council’s stock during the stock option process i.e. The price a housing association would have paid a council for housing stock if transfer had gone ahead.
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Steve Roberts | 02/07/2009 9:09 am
Mr Barrett has made some extremely pertinent points. As usual, this government proposal appears to have a hidden 'sting in the tail'. It's also ironic that, with recent changes to RTB discounts and the effects of the economic slump, RTB sales have all but stopped. Consequently, any income being received from house sale capital receipts is now minimal and will have little effect therefore in stimulating new Council house building even if the government does introduce the changes being proposed. Most Councils are now so strapped for cash that they can't even afford to employ sufficient staff and reductions are bieng made swholesale through natural wastage. Oh Brave New World !!
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Sue Witherspoon | 02/07/2009 12:30 pm
It is very difficult to see how the Government can come up with a system that is going to satisfy everyone. Any one off settlement of the national housing debt is going to see some winners and some losers - just as now. The only difference between the new proposal and the old system is that the end is in sight for the old system. If you dont want to pay a one off settlement to get out of the old system, do you really want to continue, as an alternative, with the old system in which the negative subsidy that local authorities are paying gets larger and larger?
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michaelbarratt council tenant | 02/07/2009 3:08 pm
Ms Witherspoon
Would you like to drink strychnine or arsenic? Is not really much of a choice is it. No good getting rid of HRA to be replaced by something that could turn out to be far worse for council tenants and local authorities. Presently, over 80% of local authorities pay more into the HRA system than they take out. The majority of council’s retaining their housing stock can do so viably with no outside assistance if they are permitted to retain their rent and RTB receipts.
Central Government must take ownership of the problem of a minority of councils, mainly inner city authorities who lack the resources to bring their housing stock up even up to a modest standard after years of neglect (including Central government poor oversight and neglect). Central government must find external financial resources to solve the problem and stop milking viable local authorities, thereby undermining their viability and making in effect Central government the author of disrepair.
Successive Governments in their haste to destroy the Institution of council housing have directed financial resources away into other sectors of the economy including housing associations that are generally more expensive to run, provide less security of tenure and higher rents for their tenants.
Instead of offering only the alternatives of strychnine or arsenic, perhaps Mr Healey and the Treasury must consider direct investment in the Nations council housing stock and open the debate of the way forward to include council tenants.
For my penny’s worth, I consider council housing should remain a National asset under the ultimate jurisdiction of Central government. Given local authority housing stocks were maintained to a good National standard that reflected realistic element lifetime cycles, ACTUAL local surpluses should be subject to a fair tax regime. In the name of egalitarianism, I consider the charitable trust status of housing authorities should be scrapped and those housing associations’ surpluses subject to a fair tax regime.
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