Swindon Council Housing underfunded to the tune of £11 million

Swindon Borough Council should be receiving over £11 million extra in allowances for management, maintenance and repair of our tenants’ homes. The report below come from Defend Council Housing, the national campaign which brings together tenants and trades unions.

Summary

If allowances for Local Authorities were funded at the level of actual need Swindon would have an annual increase of £11.31 million in allowances (£1,063.86 per tenant). Total allowances to manage, maintain and repair tenants’ homes would be £33.54 million instead of £22.23 million under the present system (see assumptions).

The robbery…

Most local authorities have insufficient resources to manage, maintain, repair and improve council homes. The main reason is that government has been siphoning money out of council housing year on year.

This year (2008/9) the difference between the total rents tenants pay (nationally) and the amount that our council landlords receive from government in allowances is £1.7 billion. Total rents are £6.4 billion per year whilst councils only receive £4.7 billion in allowances. It’s outright robbery. It’s even more cheek that they then try and blackmail tenants to accept privatisation on the basis that there’s no money to fund improvements!

Review of Council Housing Finance

Ministers finally agreed last December to review council housing finance. Launching the review Housing Minister Yvettte Cooper (now chief secretary to the Treasury) promised “to ensure that we have a sustainable, long term system for financing council housing” and “consider evidence about the need to spend on management, maintenance and repairs”.

Tenants and other supporters of council housing are now debating the best way to safeguard the long term future of council housing AND get the improvements and year on year funding to manage and maintain our homes and estates as first class council housing for years to come.

Fully funding allowances

In 2001 government commissioned the Building Research Establishment (BRE) to look at funding for Management and Maintenance Allowances (M&M). The BRE report in 2003 showed that M&M allowances were underfunded at only 54% of need. Updating this figure to take into account inflation and current numbers of council homes suggests that underfunding on M&M for 2008/9 is £1,300 millions nationally.

To fully fund the cost of councils managing and maintaining council homes we need government to increase M&M allowances by 40% (national figure). This would increase Swindon’s M&M from £15.31 million to £21.44 million.

In March 2008 Ministers received the final report from their ‘Self financing’ pilot. This identified that Major Repairs Allowances (MRA) were currently 40% underfunded. Whether authorities remain within the national HRA or ‘opted out’ it would be necessary to increase current MRA allowances by 75% to cover actual need.

To fully fund the Major Repairs Allowance, in line with the above observations, government should increase the MRA allowances for Swindon from £6.91 to £12.10 million.

Taken together (research into levels of M&M and MRA) means that Swindon should receive £33.54 million in allowances compared with the current level of £22.23. A new funding regime based on meeting ‘level of need’ would provide an annual increase of £11.31 million in allowances. This would enable Swindon to manage, maintain and repair its homes and sustain improvements for years to come.

Historic housing debt

One issue that largely determines whether individual authorities are in positive or negative subsidy is the amount of historic housing debt they are carrying. This debt mainly comes from the original cost of building council housing and is heavily affected by the type of construction, cost of land, time money was borrowed and prevailing rates of interest. If government took over servicing this debt (as they do if a council privatises its homes) there would be a ‘level playing field’ and it would remove the distortion between council HRAs.

What are the options?

Tenants and others are discussing what the best solution would be. Some councils are arguing for breaking up the national system for financing council housing and allowing each council to retain all the rents and receipts locally. The danger is that this leaves council tenants weaker and divided and would make it easier for government or councils to privatise our homes. There’s also real concerns that instead of government robbing our rent we’d have councils using even more of our money to subsidise other council services…

We need government to accept the principle that all the income from tenants rents and capital receipts is ring-fenced within a national HRA – putting an and end to the robbery – to fully fund allowances for local authorities. This must be introduced alongside a new and transparent criteria for allocating resources that recognises local needs (rural v metropolitan, houses, maisonettes and tower blocks, etc). This would provide tenants in every authority with the security and stability of being part of a national council housing finance regime whilst knowing that their authority will be getting the level of allowances it needs and is able to plan ahead on the basis of knowing what allowances it can expect in future years.

Assumptions

The figures for the current position are taken from the Department of Communities and Local Government (DCLG) subsidy determination for 2008/09.

The estimated ‘Need to spend’ on the Management & Maintenance Allowance is based on the current level plus 40% as in the Building Research Establishment’s analysis (‘Estimation of the need to spend on maintenance and management in the local authority housing stock’, June 2003).
The estimated ‘Need to spend’ on the Major Repairs Allowance is based on the current level plus an extra 75% – the amount indicated by the self-financing pilot results (‘Self Financing of council housing services: a modelling exercise’, DCLG, March 2008).
Figures for ‘subsidy’ are approximate as we have used a global interest rate of 7.2% to calculate subsidy for debt. The total for England is correct on this basis but as each authority has its own interest rate individual figures may vary.

To view the figures for Swindon’s funding go to http://www.defendcouncilhousing.org.uk/dch/dch_hraanalysis.cfm?Filter=Yes

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