Treasury should unlock localism, by John Perry

3 Feb 11
The Treasury should use self-financing to get council housing and its debt off the government's books. Ministers must be brave and reclassify housing in the national accounts

As Tony Travers pointed out on the PF Blog yesterday, the government’s proposed self-financing for council housing represents a rather restricted view of local autonomy, despite the minister’s claims.

However, to be fair to Grant Shapps, the Treasury had its fingers in this pie well before the general election. The cap on each council’s borrowing, which restricts them to the levels to be included in the settlement itself, were already envisaged in the ‘prospectus’ issued by John Healey as the previous minister.

Not only that, but it was always likely that the Treasury would ensure that it keeps the surpluses the government would have earned from council housing in the future.  Furthermore, it wants the facility to reopen the settlement if circumstances change. Will it be as eager to revisit it on behalf of councils’ interests as it will on behalf of its own?

A new move by the Treasury, and one worth lobbying against, is its insistence that councils continue to pay the majority of right-to-buy receipts back to government.  Not only does this undermine councils’ role as asset managers, but it creates another unnecessary element of uncertainty.

The settlement must now be based on a guesstimate of how much stock councils will lose over the next 30 years through right to buy. The only certainty about this figure is that it will be wrong, as sales depend on the volatility of the private market.

While welcoming the settlement overall, councils will rightly rail against the Treasury limits to their autonomy.  And, as was revealed last month, they have an unlikely ally in the deputy prime minister, who is said to have asked for these controls to be reconsidered in a letter to communities secretary Eric Pickles about the local government finance review.

In fact, the Treasury are missing a trick here: they could use self-financing to get council housing and its debt off the government’s books.  Council housing is already classified as outside government by the Office for National Statistics.

Taken together with CIPFA’s plans to reshape housing accountancy and separate out housing debt, this could be the moment for the Treasury to take the small but brave step of reclassifying it in the national accounts.

This would remove the need for the caps on borrowing. And it would mean that council housing really would be self-financing in April 2012, as the government promises.

John Perry is policy adviser to the Chartered Institute of Housing

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