By Neil Merrick
28 January 2010
An appeal for ministers to write off £16bn of council debt as part of major changes to the housing finance system has failed, town hall representatives have admitted.
Gary Porter, chair of the Local Government Association’s environment board, told Public Finance that councils would need to agree to redistribute the debt among themselves once housing minister John Healey announces firm proposals for reforming the system.
A write-off of the historic debt remains the LGA’s ideal position and ‘morally the only position that should be taken’, said Porter. But he accepted that the argument had been lost during last year’s consultations. ‘Practically, [Healey] is not going to get it through the Treasury,’ Porter added.
Healey told an LGA conference in October that councils should ‘wake up’ and work with him so the housing revenue account system could be reformed without primary legislation. But proposals due next month will almost certainly lead to some debt-free councils taking on extra debt, along with those that owe only small amounts.
Porter, council leader in South Holland, Lincolnshire, said his authority might end up ‘owing’ £60m even though its current debt is only £1.6m. But he urged all councils to reach agreement, stressing that the government should not load any further debt on to authorities as part of the move to self-financing.
Under self-financing, councils would keep all money raised in rents and right–to-buy receipts instead of it being pooled. Porter said it was vital that all councils saw themselves as winners in the long run, even if they took on extra debt.
‘If some lose, there is no way they’re going to sign up to a voluntary deal,’ he said.
