Kensington and Chelsea limited the budget for its refurbishment of Grenfell Tower due to a controversial government-imposed borrowing cap, council papers reveal.
The original budget for the 2014 renovation of the 24-storey tower – which included fitting highly combustible insulation to the outside – was limited to just £9.7m.
A review of the council’s housing accounts from that year shows it was under pressure to reduce its spending on maintenance projects because the government had put limits on its borrowing power.
The council’s Housing Revenue Account (HRA) business plan for 2014 shows the council had £11.4m of borrowing capacity due to the government cap, despite £100m of necessary work including Grenfell Tower.
The accounts say: “Despite the aim of HRA’s becoming self-financing, local authorities have been set a borrowing cap for their HRA which cannot be exceeded. The Royal Borough’s cap is £221m – given our current debt, our headroom for borrowing is only £11.4m... Given, the limited scope for additional borrowing, the intention is to not use it to fund maintenance work.”
It notes: “The estimated cost over the next five years to deliver the agreed investment standard is approximately £100m. There currently remains a funding gap of at least £30m.”
As a result, the council planned to plug the gap through property sales and increasing rents but was forced to operate on a tight budget.
The Grenfell refurbishment, which also included funding the construction of nine ‘hidden homes’ around the tower, was paid for largely through £6m raised from selling basements owned by the council near the King’s Road.
Two contractors – Leadbitter and Bouygues – declined to carry out the project within the £9.7m budget, with Leadbitter quoting £11.3m for the work. Rydon was eventually appointed following a procurement exercise.
Borrowing caps were imposed on councils when a self-financing agreement for council housing was signed with central government in 2012. Councils were allowed to keep their own rent receipts to invest in their stock, but the power to borrow against the income was restricted.
Councils including the Local Government Association (LGA) have consistently called for the caps to be abolished to allow councils to invest in new and existing homes.
The LGA has previously said the cap is “unnecessary” and hampers council housebuilding and local economic growth.
In 2014, the coalition government offered £300m of additional borrowing capacity to councils to invest in new build. The current government has committed to striking ‘bespoke’ deals with local authorities which would allow them to borrow more to build.
The funding revelation comes as Inside Housing publishes an investigation spanning seven years of Kensington and Chelsea’s records on fire safety, two months after the fire which ripped through Grenfell Tower, killing at least 80 people.
A Royal Borough of Kensington and Chelsea spokesperson said: “Refurbishment works are likely to feature in the upcoming public inquiry into the Grenfell Tower fire… We want to be open and transparent, but we hope people understand that we also do not want to prejudice the fair conduct of the public inquiry in any way.”
The Department for Communities and Local Government has been contacted for comment.