LGA calls for review of council housing ‘self-finance regime’

In a submission to the Chancellor of the Exchequer, for the Autumn Budget, the Local Government Association has called for a review of the “current self-financing regime” which has been in place since 2012. Under this regime Housing Revenue Accounts received no subsidy. More than 90% of their income is tenants rent and service charges. On the basis of assessments on income and expenditure over 30 years, what was said to be the national debt, was redistributed amongst councils instead of being nominally held in a central pot.¹ This involved 136 councils being loaded up with more than £13 billion extra ‘debt’ and 33 having £5 billion debt relief.

As the LGA points out “its underlying income and expenditure assumptions have both been superseded”. In other words the assumptions on which the debt was redistributed have been shown to be completely false. The 30 year business plans which councils had to draw up have been completely undermined by government policy.

“Income within the HRA is not only now lower than that provided for in the self-financing settlement, but this income is now expected to cover both higher costs and higher standards of stock and service delivery.”

Council HRAs are faced with huge extra expenditure which was not accounted for in the 2012 ‘debt settlement’.

• There is a review taking place of the Decent Homes Standard, with a view to improving it. This has cost implications. For instance if you increase the frequency of capital works, say replacing a kitchen every 20 years instead of every 30, it will increase costs to the HRA.
• The LGA estimates that additional costs to deliver net zero for council homes would be in the region of £23 billion over 20 years. This simply cannot happen without government grant.
• The sector-wide requirement to achieve building safety standards for tall buildings and buildings housing vulnerable residents is also estimated to be £7.7 billion.

HRAs have insufficient income for all these things. At the same time low levels of grant for new build mean that HRA resources are expected to fund new build as well, from resources which are insufficient to renew their existing stock. From an income of £8.6 billion around £1.3 billion goes to servicing this debt.

‘Reopen the debt settlement’

Under the 2011 Localism Act the government has the power to ‘reopen’ the debt settlement if there is a significant change in expenditure or income. There certainly has been. The government has the power to reduce or write-off the debt which councils were saddled with.

The LGA says

“A long-term sustainable funding framework for social housing is vital to ensure that councils have the ability to invest in and regenerate their housing stock, and to fulfil local and national ambitions of ensuring that everyone has access to a safe, secure and high-quality home.”

Despite the assertion of the coalition government in 2012 that every council would have sufficient funding for 30 years, HRAs were underfunded by the new system, which was designed by the New Labour government, but implemented by the coalition when they won the 2010 general election.

In the debate on the proposals of New Labour for the new system there was wide support for cancellation of the so-called debt, which was the product of financial manipulation by the Treasury, rather than historic borrowing for the various building programmes. The Labour Campaign for Council Housing explained this is detail in the pamphlet The case for cancelling council housing debt.

In the run-up to the 2019 General Election, debt cancellation was one of the issues the campaign took up. Thanks to the effort of the FBU, the trade union side of the Clause 5 meeting (the body which draws up the Manifesto) called for debt cancellation. As a concession, the Shadow Housing Minister, John Healey agreed to put in the Manifesto a review of this debt.

“We will review the case for reducing the amount of housing debt councils currently hold.”

Since Labour lost the election that could not be directly implemented. However, the Labour conference in 2021 passed a resolution which included a commitment by Labour to “Reviewing council housing debt to address underfunding of housing revenue accounts.”

But nothing has been done to implement that.

Before Lisa Nandy was moved to another job, she admitted that social housing landlords faced “a serious funding issue” given all that was required of them. The call by the LGA for a review, in the light of the impossibility of HRAs having funding for all the things they are required to do, is welcome. This is a neglected issue. Pressure should be brought to bear on MPs of all parties, and the Labour leadership in particular.

Without sufficient funding, HRAs will not only be completely unable to retrofit all existing homes but they will be unable to prevent the deterioration of the condition of homes and the living conditions of tenants. Debt cancellation would provide around £1.3 billion a year, which would be helpful.

The LGA also reiterates the need for “100,000 high quality climate friendly homes a year”. But without sufficient grant on an annual basis for new build, councils will be unable to build on the scale required. Without specifying how much, the LGA says that “councils need grant funding to fund a larger proportion of a new home” and proposes a government funded national house building task force.

Unless council are funded to build on a large scale, and, in the case of those councils without any housing, funded to start building again, then the crisis will be protracted and more councils will find themselves unable to bear the cost of temporary accommodation and sustain their other services.

Martin Wicks

October 30^th 2023

1Under The Council Housing Subsidy system councils were given an ‘allocation’ each year. In practice this mean that councils were told how much of their rental income they could keep.