24 June 2005
Few local government officers or even civil servants would disagree that the housing finance system is over-complex and should probably be reformed.
But by throwing down the gauntlet this week and challenging the Office of the Deputy Prime Minister to do something about it, the Audit Commission has given the government an extra headache.
While Labour has focused on issues such as decent homes and the reform of rents and housing benefit, the housing subsidy system has trundled along, almost untouched.
The commission's report Financing council housing, published on June 22, says that under the 17-year-old system, 82% of the 233 English authorities that still own housing subsidise the remaining 18%, and would be far better off opting out.
The 82% contribute £630m per year. Not only does the system discourage local accountability (because the rents paid by tenants bear no relationship to the quality of homes or services provided) but, more importantly, it is unsustainable, says the report.
This is because councils that transfer their homes to registered social landlords, primarily to meet the decent homes target, are no longer raising rental income, reducing the pool of cash to be redistributed.
Since the Audit Commission completed its study, a further ten councils have transferred their stock to an RSL. The report predicts that by 2010 there will be about 1.5 million council homes – almost 1 million fewer than today.
Three years ago, ministers called for a 'blue skies' debate over the future of housing finance, but subsequent changes were limited to the abolition of local authority social housing grant and new pooling arrangements for capital receipts.
Audit Commission chair James Strachan says: 'Rather than trying to sustain a complex system of cross-subsidy, we recommend that government should consider allowing those councils that can finance themselves to do just that, and to focus on how to meet the massive capital demands facing some urban councils which are still failing to meet the needs of their communities.'
Steve Bundred, the Audit Commission's chief executive, told Public Finance: 'The system is not stable. This is an issue that the government is going to have to address sooner or later.'
Ironically, most councils are raising more in rents because of the introduction of a national formula designed to bring them into line with housing associations. But this only highlights the fact that authorities cannot retain all the money they collect from tenants.
At present, council tenants in the east of England pay an average of £14 per week towards housing costs elsewhere, while tenants in London receive an average of
£15 from the subsidy system.
'Council housing may be self-financing at a national level,' says the report. 'But the ongoing transfer of stock out of the system by contributing local authorities means that the medium-term sustainability of the system is in serious question.'
According to the report, about 30% of local authorities will struggle to meet the decent homes target without a large-scale voluntary transfer. But it avoids getting involved in the debate over whether there should be a 'fourth option,' by which councils can raise money without an LSVT, arm's-length management organisation or the Private Finance Initiative.
If councils were allowed to leave the subsidy system and become self-financing, those that have already set up Almos are likely to be at the front of the queue.
Gwyneth Taylor, policy officer at the National Federation of Almos, says the system fails to give councils an incentive to perform well because so much money is recycled. 'We have suggested there should be a programme, similar to LSVTs, so that government controls how many local authorities move out of the subsidy system,' she says.
Few people expect any major reforms soon. 'The ODPM's horizons are limited to four-year election cycles rather than 30-year business planning,' says Taylor.
The ODPM confirmed this week that the issue of whether Almos might leave the subsidy system had been raised as part of an ongoing review, but it ruled out widespread changes that would prevent the redistribution of money between councils in different parts of the country.
'There has to be a trade-off between complexity and fairness,' says an ODPM spokesman. 'The system has adapted each year as stock has been transferred [to housing associations] and there is no reason why that process should not continue.'
PFjun2005
