By David Williams
25 March 2010
The government has offered councils a ‘once-and-for-all’ deal to reform the housing finance system, which would give authorities the chance to keep the rental receipts from their tenants in return for taking on an extra £3.65bn in debt.
Housing minister John Healey revealed the offer today, following last year’s consultation paper and a pledge in yesterday’s Budget to redesign the system.
He hailed the new proposals, which will now go out to consultation until July 6, as a ‘once-in-a-generation chance for change’. They give councils the opportunity to buy their way out of the current system, by taking on the £3.65bn of public housing debt, in addition to the £21.5bn that Healey calculates is already held by councils.
Local authorities would be able to keep every penny they are paid in housing rents, along with all funds raised by land sales, such as through the right to buy.
But they would not be given total freedom over rental receipts. Housing finance would be ring-fenced, Healey said, to ensure that council tenants did not end up subsidising other services.
Healey added that the debt would be distributed in a way that would be ‘supportable and sustainable’ for councils in the long term.
Under the existing centralised housing revenue account system, rents are pooled in the housing revenue account and redistributed from Whitehall, a process that is expected to generate a surplus of around £340m in 2010/11.
Healey said his proposals would increase the average council’s income from housing rents by more than 11%, and enable authorities to build more than 10,000 new homes over and above current capacity.
‘This is a big vote of confidence in councils and their role in helping to provide the houses we need in this country,’ Healey said.
He said he hoped the changes could be made in time for the 2011/12 financial year, but only with broad agreement from local government. He warned that opposition from councils could hold up the process by a year and force the government to legislate.
Phyllis Starkey, chair of the Commons’ communities and local government select committee, welcomed the move, calling on councils to ‘embrace the new system and make it work for them and their tenants’.
Gary Porter, who chairs the Local Government Association’s environment board, cautiously welcomed the news. ‘Town halls have long been campaigning for changes to the way council housing is financed to give them more freedom to deliver the homes that people desperately need,’ he said. ‘It is good news the government has brought forward proposals for reform.’
However, he said, councils would have to look closely at the detail of the proposals to ensure they would enable the positive changes Healey promised.
