PrintRadical dismantling of council housing finance announced
The announcement on 30 June by Housing Minister John Healey confirms the Government’s intention “to dismantle the Housing Revenue Account Subsidy system and replace it with a devolved system of responsibility and funding”. Details of just how this might be done will be published in a consultation document to be issued “before the summer recess”, ie, by 21 July. But importantly, in an indication of how seriously the Government does intend to move forward, he said also that “From today we will exclude all new build council housing from the HRA subsidy system which means that councils will retain in full the rent and capital receipts from these homes”.
While we won’t know the detail until the consultation document is issued, it is clear that the proposals will indeed include the kind of radical reform of council housing finance that CIPFA has long been calling for and that it will be significantly redistributive. It will “remove the need to redistribute revenue nationally.” This is a clear signal of the end of the subsidy system, whereby rental income is currently redistributed from local authorities in “negative subsidy,” in part to needier authorities but mostly – and to the tune of a projected £1bn – to the Treasury (and thus removed from housing). It is likely also to include a move to allow authorities to retain all of their capital receipts from Right to Buy.
Instead, it will be proposed that local authorities will finance their own businesses from their own rents, in exchange for a one-off redistribution of housing debt. This will enable them to plan long term and to improve the management of their homes, secure greater efficiencies and improve the quality of service to their tenants.
Primary legislation will be required and the process of implementation will not be easy. CIPFA has been working with the CLG and other organisations since 2007 on the possibilities for implementation and modeling the likely effects. Debt levels will need to be adjusted for most authorities – currently around £17bn of housing debt with annual servicing costs of around £1.1bn is spread across the 202 councils in the system. Under self-financing, all authorities would manage and fund their own debt.
The Minister also announced with immediate effect that for the first time, local authorities are now able access the same capital subsidy for new affordable homes through the Social Housing Grant that is provided to housing associations. (Decisions on the first Council schemes to be funded in this way will be confirmed in September).
These announcements follow the Prime Minister’s Housing Pledge on 29 June with a further £1.5bn to build an extra 20,000 affordable and energy efficient homes, making a £2.1bn investment over two years for 110,000 new affordable homes.
The Minster also gave an apparent hint that the definition of the PSNCR (essentially the old PSBR) might be redefined, in line with many other European countries, to exclude borrowing for social housing, thus giving local authorities more flexibility to borrow to fund council house-building, when he said that the Government is “considering whether and how any local flexibilities for new investment could be reconciled with the need to ensure the overall fiscal position for Government is not undermined”.
CIPFA’s Role
CIPFA has been represented on all five working sub-groups set up by the CLG to work on the Review of the HRA Subsidy System. CIPFA representatives, both individually and through the Local Authority Housing Panel, have also taken part in direct discussion with CLG and others on possible proposals and implementation and will continue with this work.
The Housing Panel next meets on 9 July and expects to continue working with CLG on the details.