06 December 2002
Questions were asked about the complex subsidy system that has developed since the 1950s and which few people truly understand – but even the ODPM struggled to think of something better to replace it.
Four months later, the skies have grown murkier with the onset of winter and most housing professionals are still not clear what is going on. The Local Government Bill, published last week, offers few real clues except to confirm that a new system of prudential borrowing will apply to housing as well as other services.
Many details will be thrashed out in the next 12 months, probably after further representations from local authorities. But this is an issue on which councils are finding it hard to speak with one voice.
The most controversial proposal is to pool all receipts raised by councils through right to buy sales, regardless of whether the council that makes the sale is in debt.
According to the ODPM, most of the authorities that responded to its consultation paper, The way forward for housing capital finance, were in favour of pooling. But then most councils are in debt and currently pay 75% of their receipts to the government.
A group of about 40 debt-free councils are, not surprisingly, less keen. After hiring a public relations firm to lobby ministers, the Capital Receipts Group is sticking to its argument that authorities that have paid off their debts should be able to keep all the money they raise.
'Whenever people try to be prudent with their money, the government tries to take it off them,' said David Harmer, co-chair of the group and leader of Waverley Borough Council in Surrey.
If debt-free councils handed over 75% of their receipts, it would put an extra £120m into a pot worth about £1.2bn, although there is no guarantee that it would all be spent on housing. After initially declining to support either side in the dispute, the Local Government Association has come down in favour of the debt-free authorities.
Gwyneth Taylor, LGA housing programme manager, doubted whether councils that are in debt would gain much as the extra sum was so small, while debt-free authorities could lose out considerably. 'Essentially, you should not rob Peter to pay Paul,' she said.
Civil servants claim the pooling scheme has been misunderstood. They say that it is possible for a debt-free authority to gain by receiving more out of the pool than it pays in. But the ODPM has not helped itself, says Taylor, by failing to come up with examples of how the scheme will work.
Ministers also appear cagey. Last week, junior housing minister Tony McNulty pulled out of a scheduled interview with Public Finance at the last minute and later claimed that he could not answer questions about housing finance until after Deputy Prime Minister John Prescott unveils his 'communities plan', which is expected in January.
Many of the councils that responded to August's consultation paper were opposed to the scrapping of local authority social housing grant. There were considerably fewer comments on how the overall finance system could be improved and what should happen to housing subsidy.
Top among the list of contenders is a proposal for the government effectively to wipe clean the balance sheets of high-performing councils by paying off any remaining debt. These councils would no longer receive any subsidy but would be able to borrow (prudentially, of course) on the basis of the surpluses they expect to raise from rents and other income.
But the list of questions that remain to be answered is almost endless. Would a council have to be high-performing in all areas or just run an efficient housing department? Would it receive any special privileges for setting up an arm's-length management organisation and would there by any point in going ahead with stock transfers?
John Perry, policy officer at the Chartered Institute of Housing, said: 'It is vital there is clarity after January so that local authorities may take an unambiguous decision on whether they can retain their stock on a viable basis.'
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