Social rent cut set to take £2.6bn from councils

21 Jul 15

Chancellor George Osborne’s decision to cut social housing rents by 1% in each of the next four years will cost local authorities a total of £2.6bn in lost revenue, a study by the Local Government Association has found.

The LGA found the measure, which was announced in the summer Budget and will be debated in the House of Commons today, would initially cost councils £234m in year one through lower rents in council homes. The amount lost would rise to £508m in the second year, then to £795m in year three, and more than £1bn by 2019/20.

The total £2.6bn lost will represent 60% of local government’s total housing maintenance budget, and is the equivalent of funding to build almost 19,000 new homes.

Osborne said the rent reduction would help reduce spending on Housing Benefit.

However, LGA chair Gary Porter argued any decrease in rents would not be felt by tenants, but would be reflected in the Department for Work and Pensions’ budget. This will leave councils to cope with the additional financial burden as a result of the move to Housing Revenue Account self-financing.

“Many councils have already agreed long-term housing investment plans based on the future rent levels announced in March’s Budget,” Porter said.

“It is right that rents are kept as low as possible, but our analysis shows reducing rents in this way over the next four years will cost councils £2.6bn by the end of the decade and lead to a further funding gap of £1bn per year from 2020/21 onwards.”

The best way to cut spending on Housing Benefit was to build more homes, Porter said, and councils wanted to get on with helping the millions of people on social housing waiting lists.

“It is therefore vital that these costs are considered by the government as part of the wider debate of council funding to avoid the capacity of councils and housing associations to invest in this much-needed housing being put at risk,” he added.

In particular, the LGA called for councils to be able to keep all receipts from the sales of their own housing stock as well as reiterating its call to raise the HRA borrowing limits imposed on town halls.

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