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Government introduces RTB receipts flexibilities 22/03/2021 Labelled as Development, Finance, Legislation

Councils in England will have greater flexibilities on how they spend the capital receipts from council housing sold under the statutory Right to Buy (RTB), following an announcement by Housing Secretary Robert Jenrick MP on 20 March 2021.

For some time now ARCH has been pressing the Government to introduce greater flexibilities for councils in the use of the monies received from the sale of council homes under the RTB. Under the Government's one-for-one commitment made under the reinvigorated RTB introduced in 2012, local authorities currently have three years from the date of the sale of each "additional home" sold as a result of the reinvigorated RTB to provide a replacement home but can only use RTB receipts to a maximum of 30% of the cost of providing a replacement.


Figures show that the Government continues to fall short of its commitment to replace dwellings sold under the reinvigorated RTB and even by the Government's own targets the gap between the numbers sold and the number of replacement homes provided continues to grow.


The Government published a Consultation Paper on flexibilities in the use of RTB receipts in August 2018 alongside the Social Housing Green Paper. The sector has been waiting over 2.5 years for the Government's response to that consultation and we are pleased that the Government has recognised the need for councils to have greater flexibilities in how they spend the monies received from the sale of council housing.


ARCH has long campaigned for such flexibilities and we have argued that to ensure that as a minimum council properties sold under the statutory Right to Buy are replaced on a one-for-one basis the Government should allow local authorities more flexibility to make maximum use of the capital receipts from RTB sales and we have pressed the Government to:


  • Allow councils to retain 100% of the revenue raised from sales to be reinvested locally in social rented housing.
  • Give councils the freedom to use RTB receipts to meet more than 30% of the cost of building replacement homes, to combine RTB receipts with grant funding, other capital receipts held in the housing revenue account (HRA) or public land and to pass RTB receipts to an arm's length management organisation (ALMO) or another council owned company -provided the money is still reinvested in new homes.
  • Extend the cost floor ceiling, which prevents new council homes from being sold at a loss, from 15 to 25 years.
  • Extend the three-year time limit within which RTB receipts must be committed to five years.
  • Allow councils freedoms to reduce RTB discounts locally, where they are able to demonstrate that they will otherwise have insufficient receipts to enable them to replace homes sold and a reduction in the discount would be unlikely to significantly impact on the volume of sales.


Over recent weeks we have been in dialogue with senior officials at the Housing Ministry regarding the need to introduce changes to the rules on use of capital receipts and raised the matter with senior officials at HM Treasury when we met with them on 18 February 2021 and we are pleased to see the Secretary of State's announcement on relaxation of some of the rules; even if not all of our "asks" have been met by the new measures in his announcement which include:


  • Extending the time councils have to spend Right to Buy receipts from three years to five years and move to an annual rather than quarterly process for pooling Right to Buy receipts. Currently local authorities have 3 years to spend receipts from the quarter the receipts were received in, meaning they have 4 separate deadlines for spending receipts in each year.
  • Increasing the cap on the percentage cost of new homes councils can fund from Right to Buy receipts from 30% to 40% per home for both existing and future receipts. 
  • Allowing receipts to be used for shared ownership, First Homes, as well as affordable and social rented housing.
  • Introducing a cap on the use of Right to Buy receipts for acquisitions to help drive new supply for both existing and future receipts but the first 20 units of delivery in each year will be excluded. Councils will not be prevented from acquiring properties above the cap but will not be able to use Right to Buy receipts to do so.


The first 3 changes above will be introduced with effect from 1 April 2021 with the cap on acquisitions introduced from 1 April 2022 and phased in over 2022/23 to 2024/25 from a cap of 50% down to 40% in 2023/24 and 30% from 2024/25 onwards.


The Government says it is keen to work with all stock holding local authorities to increase the level of Right to Buy replacements which are delivered through new build and the key objective of the acquisition cap is to limit the percentage of RTB replacement homes that are delivered through using RTB receipts to acquire existing housing - principally housing which is bought on the open market from the private sector.


The Government acknowledges that certain acquisitions that add to overall housing supply should be excluded from the cap, including acquisitions of new builds from a local authority's own housing company and where commercial buildings are acquired to be redeveloped for housing as part of regeneration programmes and promise to further clarify ahead of the introduction of the acquisition cap the types of acquisitions that will be included in the cap and will discuss with local authorities any specific challenges that they may face.


In its response, the Government has refused to consider allowing councils to combine RTB receipts in conjunction with other grant funding, arguing that under the self-financing settlement homes built with RTB receipts are meant to be in addition to those built using other grant money and although acknowledging that to combine these resources might make certain developments easier to fund but would run the risk of reducing the overall additional supply of council housing.


Full details can be found in the Governments response to the consultation on flexibilities in the use of RTB receipts.


ARCH Chief Executive John Bibby comments:


"The Government's announcements on greater flexibilities in the use of RTB receipts to help provide more social and affordable rented homes is to be warmly welcomed - particularly the increase in the time councils have to spend those receipts and the increase in thecap on the percentage cost of new homes councils can fund from RTB Buy receipts."


" The cap on use of RTB receipts for acquisitions may cause councils some concern but it is pleasing to see that use of RTB receipts for up to 20 acquisitions will be excluded and that the cap will be phased in from 1 April 2022, giving councils time to plan their future replacement programmes."

"We have been given assurances by MHCLG officials that they will continue a dialogue onthe types of acquisitions that will be included in the cap and will discuss any specific challenges that councils may face as a result of the introduction of the cap and I would like to hear from any ARCH member councils that feel the introduction of the cap will adversely affect their housing programmes and their ability to replace stock sold under the RTB. We are particularly concerned that local authorities that work in partnership with housing associations to build more council housing should not be penalised by the cap on acquisitions."

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