Government refuses to write off housing debt
The government has ruled out writing off housing debt, instead putting forward two options for overcoming the £18 billion hurdle standing in the way of finance reform.
In its consultation on the reform of council housing finance, it says the debt has been run up building and maintaining council housing, and should be serviced from rents. ‘It would be unaffordable and unfair to ask the general taxpayer to support this debt in future,’ it adds.
At present the government uses money councils pay to the Treasury under the housing revenue account subsidy system to service the debt. It wants to scrap the HRA subsidy, and allow councils to retain the money they make from housing, but this would require a new way of handling the debt.
The consultation suggests reallocating the debt to local authorities based on their ability to generate revenue from housing, although the precise details of the formula would require more work. This would free councils from central government control, but raises questions over the impact it would have on their ability to borrow to invest in housing, and how the risk would be managed.
The alternative is for the government to keep the debt, and charge councils to maintain it. This would reduce the risk, but would not give councils as much freedom.
Either option would be likely to create controversy. The paper admits ‘reallocation of debt is likely to be contentious with debt-free and low debt authorities’ but argues they would benefit in the long term as they are already supporting debt through the current subsidy system.
If all stock-owning local authorities agree to the plans the government thinks it could set out the terms for a voluntary, self financing alternative to the HRA subsidy system by the spring of next year.
A voluntary system could be put in place under secondary legislation, but if agreement cannot be reached and primary legislation is needed the government anticipates that a self financing system would not be operational until 2012/13.
The consultation is open until 27 October.
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Readers' comments (3)
Andrew Fiske | 22/07/2009 12:27 pm
So the deal is Local Authorities to take on an an additional debt of £18 billion nationally and that all 200 stock holding authorities agree to the terms. If all LA's agree it can be agreed by spring 2010, there will be losers are they likely to agree? I was hoping to see a spreadsheet showing each LA's likely dowry payment nationally but couldn't find one in the various volumes.
If not subject to parliamentary time (no mention of a General Election) the proposals COULD be agreed by 2012/13. Didn't the PM say he would do everything in his power to make it easier for LA's to become more actively involved in new housing provision? Until these issues are resolved with the HRA it will be difficult to make any such decisions.
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EssexMan | 22/07/2009 3:11 pm
Andrew, you make a couple of interesting points - bith wrong, but interesting nonetheless. Firstly, there is no suggestion that Authorities should 'take on an additional debt of £18bn'. The debt is already there and is already being paid by the tenants up and down the country, that is what the subsidy system is all about. The 'losers' as you put it are those authorities who for the most part have been lucky enough to have sold their stock under the RTB rules at a good enough price to have serviced the local element of the debt BUT not the national element of the debt. And I did say for the most part - I do recognise that some LA's have been prudent with their money and actually cleared the debt propoerly.
Secondly, you suggest that decisions can't be made until it is easier for LA's to be more involved in housing provision - surely that is part of what this paper sets out to do?
The LGA is quited recently as suggesting that an extra £72 billion could be spent over the next 10 years on new housing provision if the national (notional) debt were written off - now John Healey has made it clear that won't happen I look forward to the LGA admitting that it will mean that over the next 10 years LA's can CLEAR the £18 of debt AND spend £50b + on new build......but I won't hold my breath!
The ball is now in the LGA's court - they're getting almost everything they've asked for in terms of freedom to spend local rents on local services, the only caveat is that they should clear the national debt that was caused by the huge programme of building in the 50's and 60's (and indeed into the 70's) by those same LA's.
Let the LGA accept what is on the table as the only realistic option and then let us get on with dismantaling the Tenants Tax, I mean the HRA Subsidy SYstem!
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vh | 23/07/2009 1:34 pm
Its all very well to say this a 'tenants debt' as it was used to fund housing, but the same principle didnt apply to the right to buy receipts as councils couldnt retain all of these. So stock gone at a bargain price through 'discounts', rental income compromised, but debt still to pay - its not that clear really is it?
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