Treasury committee tells government to scrap HRA borrowing cap

22 Jan 18

The government cannot meet its housebuilding targets unless it scraps the borrowing cap on local authority housing revenue accounts to “unleash” council housebuilding, MPs have said.

In its report on the Autumn Budget 2017, the Treasury Committee said this step was essential for the government to meet its target of building 300,000 new homes a year. Only 217,000 new homes were built last year.

The MPs said that, although the government raised the borrowing cap for councils in areas of high affordability by £1bn, council housebuilding above that level would be needed. “Private housebuilders have consistently provided 150,000 units per year, so the target is unlikely to be met without a significant increase in supply by local authorities,” it said.

“To achieve this, the housing revenue account borrowing cap should be removed. At the very least, the Treasury should define the allocation criteria for the additional £1bn more clearly.”

Committee chair, the former Conservative education secretary Nicky Morgan, said: “The chancellor pledged to ‘fix the broken housing market’, but the government is going to find it very difficult to meet this ambition. The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn’t go far enough.

“The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed.”

Her call was welcomed by the Local Government Association, whose Conservative chair Lord Porter said: “It is great that the influential Treasury committee has backed our call for councils to be given the freedom to borrow to build more of the new homes our communities desperately need.

“This is significant recognition of our central argument about the vital role councils must play in solving our housing shortage.”

The committee also looked at other aspects of the Budget and said the Office of Budget Responsibility should make a special forecast on the impact of Brexit before Parliament votes on the EU withdrawal agreement.

In evidence to the committee, OBR chair Robert Chote said the consequences of Brexit on economic growth were likely to be so substantial as to dwarf the impact of any one-off ‘divorce bill’.

“To ensure Parliament is fully informed about these economic and fiscal impacts, the OBR should publish a ‘special forecast’ before the introduction of the withdrawal agreement and Implementation Bill,” the report said.

It also noted that ministers had admitted that using the “statistically-flawed” Retail Prices Index (RPI) to increase the business rates multiplier was unfair on businesses.

“Having acknowledged that RPI is unfair, and removing the link between RPI and the uprating of pensions, benefits, and tax allowances, the government should stop using RPI for any indexation purpose where legally possible [including] calculating the interest rate on student loans, the uprating of rail fares, and air passenger duty.”

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