Critics of government plans to reform housing finance need to remove their blinkers and take a chance on the new system
Sometimes in life you have to take a punt at something new to make a difference; take a measured gamble even. Do you back the carthorse or follow the racehorse? And so it was with some sadness that I read Paul Cook’s views against the government’s proposals for reforming council housing finance, ‘Saddled with debt?’, August 6.
The proposals drew heavily on various papers that I provided to the Housing Revenue Account Review. Clearly any new system will throw up problems, but let’s face the facts. The HRA is deeply unpopular for many reasons and that is why the government decided, quite boldly, to review it.
First, the HRA is one of the most centrally controlled systems of public finance. The government puts the vast majority of rental income from council homes into a central pool, and then redistributes most of it back to authorities in the form of allowances (driven by formulas) and support for previously agreed levels of debt. Around 75% of authorities pay into that pot (those with low debt) and 25% take out (those with high debt).
This system does little to secure good asset management as authorities do not control the main income stream. Any other business with such income certainty would be investing against the future cashflows.
One option in the government’s consultation paper is to have a ring-fenced national strategy. A more radical solution would be to give control back to authorities. After all, that’s what all the political parties have talked about doing.
Another problem is the haphazard nature of the debt in the system, which doesn’t reflect authorities’ ability to borrow as it is largely based on previous, centrally determined decisions. The size of the debt itself – £18bn (according to government figures) – is relatively low at under £10,000 per dwelling, less than half what it is in the housing association sector.
Whether this is low enough is a genuine question. The fact is, we don’t know the full investment and operational needs of our housing stock. The DCLG figures are based on high estimates. Perhaps some debt needs to be written off, but not all of it. Debt write-off does, at the end of the day, cost the taxpayer.
Another question raised by Paul Cook and others is why authorities should take on debt not of their own making? The answer to this isn’t to do with finance, it’s about pragmatism. Authorities paying into the system are already paying towards other authorities’ debt. Wouldn’t it be easier for them to control that debt themselves, based on what income they could generate?
The government isn’t going to write off all the debt and allow authorities to keep every penny – as well as all the sales receipts. Debt redistribution is the price of opting out. So it’s a compromise.
Another issue is the rents system, which does need to be reviewed. Certainly the Housing Benefit subsidy limitation – which applies only to local authorities – needs to be looked at. But there will have to be some way of monitoring rents in its place. As the Tenant Services Authority already does this for housing associations, it seems appropriate for it to do this for authorities too.
If there is to be a debate to be had, let’s have it on the pros and cons of the different delivery vehicles. Are housing associations better because they are single-focus organisations with more skill-based governance models and are able to operate outside strict geographical boundaries? Or are authorities better because housing forms part of a wider set of public services, locally based and governed by people elected by the whole community? And which set of accounting arrangements is best?
None of this is going to be easy but that’s not to say we shouldn’t aim towards it. There are lots of other questions that could have been asked in the consultation paper – but we should at least credit the government on taking that first step.
Let’s respond to that document and see where it takes us. Or, to use Cook’s analogy, let’s take the horse to the water and see if it drinks.
David Hall is a director of Tribal, a consultancy and service provider
