Spend council rent on building and improving council housing

LGA press release - 3 July 2008

Up to £1 billion of council tenants’ rent could be used to build thousands of new council homes and improve existing stock, according to a new report published today.

The Local Government Association, a cross-party organisation representing councils in England, is calling for Whitehall to end the practice of funnelling the proceeds from local authority homes into a central fund.

It argues that the money could be used by councils to build thousands of homes in areas where there is highest demand.

The report, which will be launched today at the LGA’s annual conference in Bournemouth, will reveal that more than 150 councils are being forced to transfer the proceeds from tenants’ rent to the Government, most of which is then re-distributed to other parts of the country for spending on other projects. Around £200 million is also being kept by the Treasury in a central fund – a figure that is expected to grow year on year to £894 million by 2022/23.

The LGA argues this scheme is totally unaccountable, and is leading to vital services such as the building, repair and maintenance of council housing being starved of cash. Council leaders are calling for the cash to be retained locally and spent on improving the housing needs of local people.

Local authorities built just 245 council homes in 2006/7, while housing associations built 22,194 units. If local authorities were given the same freedom and flexibility as housing associations, they could easily match this, the report says.

Cllr Paul Bettison, housing spokesman for the LGA, said: “Councils could be using this money to build thousands of new council homes to help solve the housing crisis and to improve the homes of existing tenants.

"Council tenants will be shocked to learn that their rent is being used to pay for projects in other parts of the country or is sitting in a Treasury vault. The rent that tenants pay to their council should be spent entirely on their housing needs and the needs of local people. None of it should be funnelled through to Whitehall. Councils, with the agreement of tenants, should have the freedom to decide how this money is spent.

“If this tenant tax continues, there could be serious long-term consequences for the future of council housing. If some areas of the country need extra resources for housing, this should be funded by general taxation and not by council tenants who are some of the most vulnerable members of society. The current system is a barrier in the way of councils who are striving to provide the best possible housing for tenants now and in the future.

“Councils want to create places where people are proud to live. Spending all of the rent proceeds locally will allow neighbourhoods to be regenerated and housing estates to be renewed.

"We need to create a housing finance system that will deliver good quality homes and services to council house tenants and allow councils to develop and manage their homes properly."

The proposals have strong housing sector support, and the report is a position paper which sets out how the Local Government Association (LGA), London Councils, the Chartered Institute of Housing, CIPFA, the Councils with ALMOs Group (CWAG), the Association of Retained Council Housing (ARCH) and the National Federation of ALMOs (NFA) believe local authority housing finance should be changed.

Sarah Webb, the Chartered Institute of Housing Chief Executive, said: “We firmly believe that in the interests of fairness, accountability, and local responsiveness, the HRA subsidy system must be scrapped. The key thing now is to work out how any replacement financial system can ensure that all local authority housing departments have enough money to meet their tenants’ needs and aspirations. We encourage anyone with an interest in this reform to contribute to the debate at http://moodle20.cih.co.uk.”

The LGA has launched a major new housing campaign – Places You Want to Live – which aims to ensure that houses are affordable, well designed, of high quality, enhance the environment and neighbourhood, support economic development and regeneration, and are in communities where people want to live and can thrive.

Notes to editor:

Every council that owns and manages housing is required to maintain a Housing Revenue Account. This is ring-fenced from the council’s other income. The Government then assumes how much of it the council needs to spend and also sets out how much rent a tenant pays. From these calculations it is determined whether or not the authority is entitled to receive a Housing Revenue Account subsidy, or whether it pays into a central pool. In 2008/09, it is estimated that 50 councils are receiving subsidy and 156 are paying. This effectively means that some council tenants are subsidising tenants in other parts of the country through their rents. Eventually all local authorities will be net contributors to the scheme. The redistributive ‘pool’ is also in surplus by almost £200 million, and on current trends is projected to increase as follows:

Source: Parliamentary question 18/12/2007
 

Author: LGA Media Office
Contact: LGA Media Office, 020 7664 3333