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Government Consultation on new Housing Finance system
In a statement from Minister of Housing, John Healey, the government has announced it is producing a consultation document before the summer recess (of Parliament) which will propose to “dismantle the Housing Revenue Account Subsidy system”and replace it with “a devolved system of responsibility and funding”. This is it’s response to the Review of Housing Finance which it recently carried out.
Under the current system the government determines the level of grant which each Council is given. The majority of Councils receive less grant than they raise in rent from their tenants. In the case of Swindon the Council receives £16 million less than it raises in rent. When other allowances, such as Major Repairs Allowance, are taken into account, it suffers a “negative subsidy” of £9 million a year.
The national ‘pot’ (effectively the Treasury) has a surplus from the national Housing Revenue Account of £200 million currently. If the current system was continued this surplus was expected to increase to £894 million, sitting there unused. This is rent which is raised by Councils but which the government takes and does not redistribute to other Councils. Healey’s proposal would put an end to this “negative subsidy”, since it accepts the principle that Councils can keep all the rental income they raise. This is what the coalition of tenants organisations, trades unions, and Councils has been demanding. It will greatly lessen the pressure on Councils to transfer their housing to Housing Associations or private companies.
Like all concessions by this government it is something of a mixed bag. Some of the fundamentals of New Labour’s Housing policy will be maintained: e.g. the ‘right to buy’ and ‘tenant’s choice’.
Transfer However, Healey indicates a weakening of their policy in relation to transfer which is potentially significant.
“We will continue to work with councils whose tenants have voted for transfer and councils who are currently developing transfer proposals to bring these to completion. Future transfer proposals will not gain any financial support beyond what would be provided under self-financing.”
Whilst we would like them to put an end to transfer and the ‘options appraisal’ process, if future transfer proposals will gain no more support than Councils will under ‘self-financing’ then there would be little reason to transfer stock to Housing Associations.
The question which those who want to defend Council housing (and see it expand) have to consider very carefully, is exactly what is this ‘self-financing’ system? On one level, local control of our Housing would be better than a Minister determining how much of our rent we can keep. However, rent itself is insufficient to maintain the standard of current stock never mind build new stock.
So what funding would we receive from the national level under the new system? According to Healey:
“We remain committed to completing our comprehensive decent homes programme and to maintaining this standard. The reforms I propose will safeguard this commitment. Capital funding will be provided to support this.
Our aim in setting up the self-financing system is to ensure that it delivers the investment needed to maintain the existing stock of council homes.”
Moreover, he says that the new system would “remove the need to redistribute revenue nationally, whilst continuing to ensure that all councils had sufficient resources.”
This sounds like the continuation of the allowances we receive: Management & Maintenance Allowance and the Major Repairs Allowance, the latter being crucial to modernising the stock. We shall see what the detail is, of course, before making judgement.
In order end the existing system and introduce a new one, Healey says that the government will have to introduce primary legislation. Timing is critical here given the approach of a General Election. Presumably they intend to timetable its implementation before then. If not then the consultation would constitute little more than posturing. The consultation document will include this timetable according to Healey’s statement, so we will find out then.
A “one-off settlement of debt”
One major issue which has the potential to be contentious is that of outstanding Housing debt. There will have to be a “one-off settlement of debt”, which will mean “adjustment of debt levels for most authorities”.
There is obviously scope for disagreement over whether the settlement is adequate for the needs of each Council.
The composite debt of all council housing is around £17 billion. The annual servicing costs of this are £1.1 billion spread across the 202 councils which still have Council housing. Currently this debt is dealt with at the national level. Under the ‘self-financing’ system the government is proposing each council would “manage directly and fund their own debt”.
Since New Labour came to office they have used the writing off of housing debt as an incentive for tenants to vote for transfer. The Defend Council Housing campaign has said, if they can write off debt for transfer, why can they not write it off for Council housing? The write off of £17 billion is entirely feasible and would help to create the conditions in which Councils could develop a much more substantial Council house building programme than the government is so far prepared to fund (see more on this below). This would help to tackle the recession and put building workers back to work. It is merely a question of priorities.
Abandoning the ID card scheme and Trident renewal would more than cover the cost of writing off this debt.
New Council Housing?
Whilst the government has conceded the right of councils to build new council housing – something which they opposed until recently – the question of how it would be financed is yet to resolved. Keeping all our rent would help but would not suffice. Talk of councils playing a bigger part in house building is worthless unless the funding issue is resolved.
“In the future within this self-financing system, local authorities may also wish to borrow to fund investment. Government is currently considering whether and how any local flexibilities for new investment could be reconciled with the need to ensure the overall fiscal position of for government is not undermined.”
The question here is whether Councils can borrow money, as they used to, from the government, or whether they would have to borrow from commercial sources. If it was the latter it would drive up rents because the cost of commercial borrowing is higher than money borrowed from the government.
Healey does say that there is “a strong case” for allowing councils to retain all their capital receipts, from the Right to Buy sales and from other HRA assets. However, the Right to Buy should be abandoned. It is a major reason for the housing crisis. There is little point in building new Council housing if tenants are allowed to buy existing stock, which supporters of Council housing have always considered to be public assets which should never have been sold off.
In the Budget the government announced £100 million to fund 900 new council homes. Since then this puny pledge has been increased by the announcement of a further £1.5 billion to build an extra 20,000 “affordable homes”. This apparently includes a further 3,000 Council homes. On the national scale this is a ridiculous figure which fails to address Council house waiting lists which are heading towards 2 million. It makes a nonsense of Healey’s assertion that:
“Together, these changes will enable Councils to become once again significant providers of new housing, with further flexibility to do more, where councils can act rapidly and offer good value for money.”
Equalisation of rents
One issue which Healey’s statement does not refer to is the question of the so-called ‘equalisation of rents’. Based on the spurious argument that they were ‘simplifying the system’, the government set about equalising rents between Council Housing and Housing Associations. Historically, HA rents were around 20% higher than Council rents because HA’s had to borrow money for building from commercial sources.
Councils borrowed the money from the government at lower rates than were available in commercial markets. In practice the government was seeking to drive up Council rents to HA levels. This was a means of trying to undermine resistance to transfer. If your rent is the same whether you are with a Council or an HA, ran the rationale, why bother opposing transfer (there are other reasons to oppose it, of course)?
However, the government has found it difficult to do this and the date for equalisation keeps on being pushed back. The recent 50% cut in the latest Council rent increase was not matched by Housing Associations. The original target for equalisation was 2012, but this has been pushed back, and the latest estimated date is 2024/5.
Will the government’s new system maintain ‘equalisation’? We should obviously press for its
abandonment. What sense does it make if they are not going to offer financial incentives for transfer, for equalisation to be maintained as a government target? Moreover, the process of driving up Council rents is making rent levels less and less affordable for poor families, especially those in low paid jobs.
So what does this new policy add up to? Provisionally (the devil may well be in the detail) it represents a shift away from New Labour’s slavish adoption of Thatcherite housing policy, though not an end to its framework. When they came to power in 1997 the government’s policy was to end Council housing. Whilst they spoke about ‘tenant choice’ in fact they most often presented the choice to tenants of improvements if you vote for transfer (and the wiping out housing debt as well) or stay with the Council and you will get nothing. They set themselves the target of transferring 200,000 houses a year. Whilst they had many successes in the first years, utilising this one sided ‘choice’, progressively the movement of tenant s and unions had more and more successes in ballots. Without this campaigning there would now be little Council housing left.
Year after year at Labour Party conference the leadership was defeated as the conference demanded the abandonment of this disastrous policy, but the government ignored their own conference. The government’s housing policy effectively collapsed, and the stupidity of it has been underlined by the crash in the housing market (fuelled by reckless lending encouraged by Chancellor Brown), the lack of affordable homes, and the big increase in the numbers of families on Council housing waiting lists.
Under all this pressure the government has had to row back to a degree. However, they are proposing to maintain the fiction of ‘tenant choice’ and the ‘right to buy’. They have conceded the right of Councils to build New Council housing once again (abandoning their long held opposition to it) but on such a puny scale that it cannot conceivably address the housing crisis and start reducing the waiting lists.
The HRA subsidy system was conceived as a means of equalising investment across Councils. The way that it has been operated, however, was leading to a situation where every single Council in the country would eventually end up with a “negative subsidy”. This was obviously unsustainable and appears to be the main reason why the government is abandoning the current system.
However, ‘self-financing’ could leave every Council to its own devices unless there is a means of equalising resources according to the social circumstances which exist in each area, and of ensuring national standards which improve the quality of Council housing. We know, for instance that the M&M and MRA allowances are estimated to be over 40% less than Councils actual needs.
This is the result of research commissioned by the government. In the case of Swindon (based on this research) the Defend Council Housing Campaign estimated that the authority needed over £11 million more than it receives.
Responding to Healey’s announcement, the Defend Council Housing campaign has said that tenants will not support ‘self-financing’ unless there are ‘safeguards’ in place. These include:
• Ring fencing all rent and receipts (so that the money cannot be used for anything other than Council housing);
• Protecting low rent levels;
• Keeping ‘secure’ tenancies – no means testing, time limits or two-tier tenancies;
• A moratorium on further privatisation and stock options appraisals.
This change in government policy provides an opening for campaigners but we should step up the pressure which has helped to produce their partial retreart. DCH called the bluff of the government by demanding an “equal playing field” so that tenants who chose to remain with their Council were not disadvantaged in comparison to those who transferred. However, the future of Council housing and its expansion as the only realistic means of securing sufficient ‘affordable housing’, will only be secured when the policy introduced by Thatcher and continued by New Labour is overturned. This requires the abandonment of their infatuation with house ownership which has been such a central part of New Labour’s credo. For many people ownership is an albatross around their neck. It is
only the absence of Council housing that has forced many to take out a mortgage they can barely afford because they know they have no chance of getting Council accommodation. That is why life for many people is a constant struggle to make ends meet from one month to the next.
Council housing represents social provision for those who cannot afford to buy a house and those who do not want to. It is high time that the discrimination against it and tenants who live in it was brought to an end.
Implications for Swindon
At the time of writing Swindon Borough Council is due to put a proposal to the July 16th Council meeting to ballot tenants for a transfer of our Housing stock to a Housing Association. In the light of the government’s announcement Swindon TUC has called on the Conservative ruling group to suspend its proposal pending examining the detail of the government’s new system, shortly to be published. The proposal to go for transfer is based on financial calculations that are now out of date. Whilst the detail of the new system will have to be examined carefully, the fact that the government has accepted the principle of Councils keeping all their income from rent, is sufficient reason to suspend the move to ballot, since it means that Swindon’s “negative subsidy” will end. We will receive at least £9 million extra per year.
In response to an email from me, David Renard, Lead Councillor for Housing, has said that he is looking at the proposals with Council Officers. He says that “all options” remain open. We hope that the Council will do the sensible thing and ‘look again at the numbers’ when the detail of the Government proposals become available. Should they proceed with a ballot we will, of course, campaign for a No vote against transfer.
Martin Wicks, Secretary Swindon Trades Union Council July 9th 2009
Visit these websites
See Swindon TUC’s input to the government’s Housing Inquiry