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HRA borrowing cap to be scrapped 11/10/2018 Labelled as Development, Regulation

In a surprise announcement made in her speech to the Conservative Party conference on 3 October, Prime Minister Theresa May promised that the Housing Revenue Account (HRA) borrowing cap would be "scrapped"


On the HRA borrowing cap, The Prime Minister said:


"………we will only fix this broken market by building more homes. And that is what we are doing. More new homes were added to our stock last year than in all but one of the last 30 years. But we need to do better still.


The last time Britain was building enough homes - half a century ago - local councils made a big contribution.


We've opened-up the £9 billion Affordable Housing Programme to councils, to get them building again. And at last year's conference I announced an additional £2 billion for affordable housing.


But something is still holding many of them back. There is a government cap on how much they can borrow against their Housing Revenue Account assets to fund new developments. Solving the housing crisis is the biggest domestic policy challenge of our generation. So today I can announce that we are scrapping that cap."


A subsequent press release from the Ministry of Housing, Communities & Local Government (MHCLG) seemed to indicate that the debt cap would be scrapped completely saying in a statement that:


"Removing the borrowing cap entirely is also likely to diversify the house building market, with councils being better able to take on projects and sites that private developers would consider too small. The cap will be lifted as soon as possible, with further details confirmed in the Budget."


The inference from the Prime Minister's speech and the MHCLG statement is that HRA borrowing caps will be removed completely and councils will be free to borrow against their housing assets and future rental income constrained only by prudential borrowing rules.  However it seems we will have to wait until the Chancellor's Budget Statement on 29 October for further information including details of exactly when the borrowing cap will be lifted and whether there will be any conditions attached to the lifting of the borrowing cap including any potential amendments to the Local Government Prudential System and associated guidance on prudential borrowing.


Responding to the Prime Minister's announcement, ARCH Chief Executive John Bibby commented:


"In January 2015, prior to the General Election in May that year, ARCH and the NFA launched a joint manifesto entitled "For a council housing renaissance"

In that manifesto we argued that there was a need for a renaissance in council housing (or as the Prime Minister now puts it: "a new generation of council housing") and, in order to achieve this renaissance, the HRA debt cap must be removed. In that same manifesto we also argued that the rules governing use of Right to Buy receipts to finance the promised one for one replacement of homes sold under the Right to Buy were unnecessarily bureaucratic and inadequate to guarantee one for one replacement and that the arrangements for use of Right to Buy receipts must be reformed if the sector was to be enabled to deliver one for one replacement.


Those two major "asks" and the sought-for renaissance in council housing seemed a long, long, way off when the incoming Conservative government under David Cameron and George Osborne subsequently introduced a 4 year 1% year on year rent cut and plans for a High Value Asset Levy on councils' Housing Revenue Accounts to be funded by the sale of so called "higher value" council housing.


It is therefore cause for celebration that some three and a half years on from the 2015 General Election, the current Conservative government has not only scrapped the idea of a High Value Asset Levy, announced a new 5 year social rent policy from 2020 and is consulting on proposals for significant relaxations to the rules governing use of Right to Buy receipts but has now also announced a scrapping of the HRA borrowing cap.


ARCH warmly welcomes all four measures but recognises that the gauntlet has been well and truly thrown down and stock retained councils must now rise to the challenge of delivering the promise of "a new generation of council housing".


Councils have in the past faced criticism for their failure to spend up to the existing borrowing cap and in response ARCH and the NFA commissioned a detailed piece of research into the extent of so called "under- utilised" HRA borrowing headroom amongst authorities in England, the results of which were published late last year in our report "Raising the Roof".

Through research commissioned jointly by ARCH we have also demonstrated that investment in social housing can save post-Brexit £billions in the long term and we have successfully campaigned on behalf of our member councils to make the case to government to:


  • Lift the HRA borrowing cap
  • Introduce greater flexibilities in the use of RTB receipts
  • Scrap the High Value Asset Levy; and
  • Re-introduce a long term policy for social rents


Subject to the promised further announcements on the lifting of the borrowing cap and the outcome of consultations on the use of RTB receipts, the stock retained sector will have achieved most of what we have been asking for.


Councils are naturally prudent in the management of their finances but, once the borrowing cap is lifted, the expectations on councils to deliver significant new investment in housing will increase substantially and I suspect this is what the Housing Minister Kit Malthouse will say when we meet him in a few weeks' time.


The next challenge for councils seeking to take advantage of the scrapping of the borrowing cap will be one of building up their capacity and developing the necessary skills and knowledge to deliver new housing on a much larger scale than has hitherto been possible. Through our New Build Network we will support ARCH members to rise to that challenge "


ARCH will be watching carefully for further announcements on the scrapping of the HRA borrowing cap in the forthcoming Budget and will provide a detailed briefing for ARCH members in due course. 

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