Housing Revenue Account reforms 'will deliver 10% more cash for councils'

Proposals have finally been tabled to scrap the complex system of cross-subsidies for council housing in England, and allow local authorities to maintain and build homes using their own funds from rents and sales.

Housing minister John Healey said the new system drawn up by the Department for Communities and Local Government (DCLG) could deliver at least 10% more cash for housing upkeep in every council area.

And it will give local authorities the capacity to build more than 10,000 council homes a year - a fivefold increase on the current rate of construction - potentially creating more than 20,000 jobs.

Mr Healey said that the four million people who live in England's 1.8 million council properties will get better homes and better services under the new system, which now goes out for consultation with local authorities.

Under the Housing Revenue Account (HRA) system, introduced in 1935, money from rents and sales of land and homes is sent by councils to Whitehall, where the DCLG manages the national housing debt and redistributes funds to the 177 local authority areas according to a complex formula.

The new self-financing system would allow councils to keep their cash and decide for themselves how to spend it on maintenance, refurbishment and repairs of social housing.

In return, councils will be asked to take on their share of a £3.65 billion debt. Town halls will also be able to borrow more cash to fund refurbishment and house-building projects.

"This is a once and for all settlement between central and local government," said Mr Healey.

"It will bring council house funding up to date, replacing a system which was introduced before the Second World War.

"Councils will get the freedom to fund and run their council homes, without central Government subsidy. Not a single penny from rents or sales will go to Whitehall and not a single penny will subsidise other councils as the current system dictates."

He added: "This is a change which councils have been calling for, and which has cross-party support. This is an opportunity for radical change which will allow councils to do much more to provide better services and better meet the needs of local people."

Councils have until July 6 to respond to today's proposals.

The chair of the cross-party House of Commons Local Government Committee, Labour MP Phyllis Starkey, urged councils to "embrace the new system and make it work for them and their tenants".

Dr Starkey said: "This is a radical proposal to find a workable alternative to the discredited HRA system.

"The opportunity for councils to build significant numbers of new homes again is particularly very welcome."

The chief executive of the Local Government Information Unit think-tank, Andy Sawford, said: "Councils have been caught in a centralised funding trap for too long. It has been clear for many years that funding for repairs and new housing was not sustainable under the current formula, which has left councils unable to build or repair housing stock in a sustainable way.

"We welcome today's announcement by John Healey, but questions remain about how councils can be expected to take on debts of £3.65 billion alongside their current efficiency and debt obligations."

Andy Sawford, Chief Executive of the Local Democracy think tank the LGiU welcomed the news, said: “Councils have been caught in a centralised funding trap for too long.

"It has been clear for many years that funding for repairs and new housing was not sustainable under the current formula, which has left councils unable to build or repair housing stock in a sustainable way.

"We welcome today’s announcement by John Healey, but questions remain about how councils can be expected to take on debts of £3.65bn alongside their current efficiency and debt obligations.

“We want to see a new deal to help councils overcome the Whitehall debt trap which has created a situation where councils are paying off debts for housing built in the post war period, which in some cases is now being demolished.

"Our recent report: ‘Once and for all – funding the improvement gap in existing council housing’ shows that councils nationwide owe £18 billion from old loans to build council housing.

"Every year as a country we are raising £6 billion a year from council house rents – and spending more than £1 billion repaying debt.

"Reform of the subsidy system is a major step in the right direction, now the Government should allow councils to take payment holidays from these massive loans which would enable them to pay off debt in 25 years.”

Nigel Minto, Head of Sustainable Communities at London Councils, said: “London boroughs have long been campaigning for a simple, locally based system of council housing finance.

"The outdated HRA system is proven not to work and any commitment to reforming it is to be warmly welcomed. 

“Keeping local rents also means that councils will be able to plan their budgets more easily over a period of time.  This will mean better decisions, made locally by local borough members and will lead to better services and (where councils choose) even new homes.
 
"We will need to have a look at all of the details and see how this will impact on London.”

Councillor Tony Newman, the Local Government Association's Labour Group’s lead on housing, said: "Today's announcement shows that only Labour is taking the initiative on housing and making sure extra money goes into building much needed homes for the future.

"This deal lets councils get on with the job by providing more freedom and capacity to deliver.

“Councils are well placed to respond to the needs of their communities and Labour Groups across the country are committed to providing more homes, which are affordable and of a high quality.

"The LGA Labour Group has long argued for greater flexibility and autonomy for local government, and we applaud John Healey for rolling up his sleeves and initiating radical reform that enables councils to deliver for their communities.

“This approach is in stark contrast to the lacklustre Tory proposals on housing which offer weak incentives for councils to build homes and undermine the principles of social housing.”