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Our Budget asks: let councils exercise local control of their housing assets and revenue 24/10/2017 Labelled as Rent, Development, Finance, Legislation

Following discussions with DCLG officials, ARCH and the National Federation of Almos (NFA) have submitted a number of "asks" of the government in advance of the Autumn Budget on 22 November arguing the case for Councils to have full control of their housing assets and revenue by committing to the principles of Housing Revenue Account (HRA) self-financing for council housing.


Jointly produced by ARCH and the NFA, our budget submission - updated following the recent Government announcement of a return to the policy of CPI plus 1% for social rents - sets out our key asks on lifting the HRA debt caps for new build purposes and relying instead on prudential borrowing rules to enable investment in new homes - paid back from rental income.


If the government won't commit on the lifting of debt caps we ask that government approve a number of bespoke housing deals as quickly as possible to create a group of "market leaders" who could share experience and good practice with others.


Our submission welcomes the return to the policy of CPI plus 1% for social rents - an issue on which we have campaigned for some time and sets out a number of issues that are still acting as a brake on development plans for many councils including:


  • Continuing uncertainty about the levy on higher value housing assets introduced by the Housing and Planning Act.


  • Problems caused by the current Right to Buy (RTB) levels and limitations on use of capital receipts and arrangements for 1 for 1 replacements.


  • The artificial, and to some extent arbitrary, limits to investment in social housing placed on councils by the HRA debt caps.


In our submission we remind government that ARCH and NFA have never supported the proposal for introduction of a High Value Asset (HVA) levy on HRA assets to pay for RTB discounts for housing associations arguing that it is "doubly unfair" councils should now be expected to pay for extension of the policy to housing association tenants. 


We make the case that at a time when the housing market is broken and there is an urgent need for more affordable rented housing, especially in areas of high demand & high value housing, councils should not be forced to sell off existing social rented housing to fund payment of a levy to government unless a council decides locally that it is the best use of that asset and can reinvest 100% of the receipt back into affordable rented homes in their local area.


We also point out that continuing uncertainty about the amount and timing of any future HVA levy is a drag on investment in new housing through the HRA, making it prohibitively risky for many councils to commit to significant housing investment plans, whether in improvements to the existing stock, or new building.


We call on government to make an early statement dropping plans for introduction of a HVA levy and instead deliver the promise in the Housing White Paper to "back councils to build" by supporting more council housebuilding through the self-financing HRAs.


To ensure any council properties sold under the statutory Right to Buy are replaced on a 1 for 1 basis our submission recommends the government allow local authorities more flexibility to make maximum use of the capital receipts from RTB sales, urging 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.


In 2012, the Conservative led coalition government introduced a new regime of HRA self-financing under the Localism Act 2011 which was supported at the time by all political parties and under which councils were relieved of any future need to give to or receive from government any payments of housing subsidy in exchange for a one-off debt settlement based on the net present value of its housing stock.


In return, councils won the right to keep rent income from council housing in full and invest it locally.


This reform lead directly to council house building starts in England reaching a 23 year high two years ago but the good work started by councils in managing their housing stock on a self-financing basis over the long term has been reversed as a result of a number of policy changes introduced since 2012 by successive governments.


We argue that councils were just getting to grips with the new self-financing regime and starting to invest in new council housing when previous governments increased the uncertainties and risks for councils by introducing a reinvigorated RTB with substantially higher discounts, imposing a 4-year mandatory rent reduction and signalling the introduction of an as yet unspecified HVA levy thus preventing them from prudently investing any more.


Our submission urges the government to re-instate the original self-financing principles and allow councils more control and flexibility to make the best use of their assets and resources locally - given the evidence is that with the right long term, stable framework that is what they were starting to do and will be able to again.


Our submission argues that councils should be empowered to build more homes by:


  • Taking back control of their housing assets and revenue by seeking a re-commitment from government to the principles of HRA self-financing for council housing under the Localism Act 2011 - which has the potential to drive a real revival in public investment in council housing if properly supported.


  • Lifting the HRA debt caps for new build purposes and relying instead on prudential borrowing rules to enable councils to invest in new homes and pay back the money from their rental income, and;


  • If Government is still not willing to commit to the above points we argue that government should approve a number of bespoke deals - which are already being discussed across the country - as soon as possible to create a group of "market leaders" who could share experience and good practice with others.


Read our Autumn Budget submission and full set of "asks".

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