What do we expect from the management of public finance? Given we all pay taxes, this is always a relevant question. But, practically speaking, when the public sector was flush with money, questions about value took on a different perspective. Value for money is not a fixed equation. It depends on, well, what you value.
We can see how this can shift in individuals. Recent figures from the British Bankers Association show that borrowing from credit cards and personal loans is down £2.6bn from the year before. At the same time, personal savings have started to increase after years of decline, according to the Building Societies Association. When times are good, people are confident and don’t worry about their debt burden. When times are tough, people pull up the drawbridge and want to squirrel away cash to cover them through the bad times.
This kind of natural human reaction has its equivalent in the public sector. Our ideas about value for money are shifting. Increasingly, local authorities are looking at the debt burdens they are carrying and recognising that they need to make the case to bring that burden down – especially where government policy is holding them back.
The Local Government Information Unit has just published a report looking at council housing finance in the London Borough of Southwark, Once and for all: funding the improvement gap in existing council housing. It was a timely exercise, tapping in as it does to the nationwide shift towards a more realistic, sustainable approach to money and indebtedness. It revealed a familiar story to housing professionals – but it was a story that would have come a surprise to most other people. Listening to national debate about housing over the past decade, little on the surface was about debt. But debt is a constant undercurrent that drives many policy decisions, not always sustainably or intelligently.
The reality is this: councils nationwide are holding £18bn in debt. Much of this debt is being repaid at levels far above the historic average for interest rates – 9% and more. Much of the debt was taken out, quite rightly, after the Second World War when communities were devastated by bombing and the legacies of Victorian slums. There was no alternative – people had to be housed – but there was also little planning to ensure that debt was repaid.
Right-to-buy receipts began to contribute to debt reduction, until the government changed the policy and began to take that income into the Treasury for its own plans. The structure of debt from the Public Works Loan Board does not require capital to be repaid, and for years now the national housing revenue account subsidy system, which cycles housing money around the country, has penalised councils who repay their debt. By now, however, the often poorly constructed estates of the 1960s building boom are so degraded that they are being knocked down – but the interest payments on debt continue unabated.
One thing from this should be evident to any right-minded person – paying off debt in perpetuity is financial madness. No one would ever be given a mortgage on such terms. But that is the state local authorities find themselves in.
Critically, local authorities are also hampered from getting out of this state. Housing may be local, but housing policy is very centralised. The central subsidy system redirects funds around the system in such a way that decisions must fit the assumptions of the system or be penalised. A greater straitjacket is harder to imagine.
Happily, the Department for Communities and Local Government is mid-way through dismantling the loathed subsidy system. Unsurprisingly, the biggest area of controversy is how local authorities will deal with debt.
In our report, we have suggested solutions, including debt restructuring. But the most important outcome must be this – councils must have the freedom to manage their resources themselves, using values that reflect the priorities of the people they serve. Not because of some misguided view that councils have all the answers, but because finding a way to work through the financial jungle needs to be done one local authority at a time. Renewing council housing, to make it financially viable to maintain, must be done one estate at a time. You cannot deal with this level of detail except by getting yours hands dirty and working it out. But there’s no point working a way out of the maze if government subsidies, policies and legislation mean your solutions never get past the first few steps.
And because of this, local authorities know this is their problem to solve. They have the maturity to accept they are in this together, and that there is no magic money tree. They are up for this challenge, but it has to be a fair one. And working with Southwark demonstrated one thing very clearly – it is easy for councils to stand up and be counted when they will receive praise and adulation. But when the stakes are about indebtedness and inadequate housing, it takes guts to hold yourself fully accountable for finding a way out.
Southwark is up for this process, even if it is a painful one. Other councils are too. It’s their debt, they want to pay, we should let them.
Amelia Walker is head of the Centre for Service Transformation at the Local Government Information Unit
