The text of our appeal is shown below or you can download a PDF here debtappealv2
Tackling the council housing funding crisis
Local authority Housing Revenue Accounts are suffering a financial crisis as a result of extra ‘debt’ they were given in 2012 and because of government policies cutting their income.
The signatories to this statement are calling on Labour to urgently press the government to reopen the council housing ‘debt settlement’ of 2012 and to cut the debt in line with income lost as a result of central government policies implemented since then.
In 2012 a new council housing finance system, self-financing, was introduced. Each council had to draw up a 30 year business plan. These were based on estimates of income and expenditure over this long time-scale. The centralised system was ended and what the government said was the national council housing debt was redistributed. A big majority of councils were given extra debt, over £13 billion, a small minority had their debt cut by£5 billion. Housing Minister Grant Shapps said the new system would “give councils the resources they need to manage their own housing stock in the longer term – correcting decades of under-funding”. However, because of the cost of servicing this debt (more than a quarter of their income) and the impact of government policies since the new system was introduced, Housing Revenue Accounts are being starved of funding.
The amount of debt each council was given was in large part based on an estimate of rental income over 30 years. However, HRAs are taking in hundreds of millions of pounds less rent than planned for. This is the result of two changes in the rent formula which councils had to follow:
- The change from RPI + 0.5% + up to £2 a week extra, to CPI + 1% (CPI is usually lower than RPI)
- The abandonment of the commitment to CPI+1% for 10 years and the imposition of an annual rent cut of 1% for four years;
- The ‘enhanced right to buy’ which increased discounts and a reduced qualification period from 5 to 3 years. As a result sales increased from less than 3,000 a year to more than 12,000. A more than fourfold increase in sales means that councils are losing far more rent as a result of right to buy than was estimated in the ‘debt settlement’.
‘Self-financing’ was introduced in the 2011 Localism Act. The Act gave the government the power to ‘reopen the settlement’; that is to readjust the debt each council was given if new policies impacted on their income, or increased their costs. It gave the example of “a major change in rental policy” as a reason for reopening the settlement. This power can be used “if a change is made which would have a substantial, material impact on the value of the landlord’s business”. In fact their policies have negatively impacted on the income of all authorities with council housing stock. The loss of planned for income has been massive (see Appendix).
Councils do not have the resources to maintain and renew their existing council housing stock over the long term. They are cutting their spending and are unable to renew key components such as roofs, bathrooms, kitchens etc in good time.
This will inevitably lead to a decline in the condition of the stock and hence the living conditions of tenants. Even worse, as the recent example of the Grenfell Tower catastrophe shows, these financial pressure can lead to councils carrying out work on the cheap with potentially deadly consequences.
Unfortunately, neither Labour’s General Election Manifesto nor its ‘Mini-Housing Manifesto’ addressed this council housing funding crisis. It is completely unjust that councils are saddled with levels of bogus debt based on projected income which bears no comparison to what they are actually collecting. Council housing needs funding which is adequate for its needs and ensures decent standards for all tenants.
As a matter of urgency Labour needs to demand that the government reopen the debt settlement and at least cut the debt in line with the income lost as a result of policies since 2012.
Here are some examples of the financial situation faced by council HRAs.
- Brighton. The rent cut will reduced resources by £14.1 million over four years with a cumulative reduction in resources of £223 million over 30 years compared to previous business plan assumptions.
- Bristol. The council estimates that it can balance its budget up to year 16 of its business plan but from year 17 to 30 it will have a funding gap of £210 million for capital sending (i.e. for renewal of key housing components).
- Hammersmith & Fulham. £76 million of necessary works was postponed as a result of the shortage of resources.
- Kensington & Chelsea. Such was the impact of government policies on their finances that over the next five years the HRA has £87 million less money than required for crucial capital spending. They have only £59 million available for £146.1 million of necessary work.
- Lambeth. The four year rent cut means a loss to the HRA of £80 million. A deficit of £190 million is forecast for the end of the HRA business plan.
- Leicester. The council’s budget document states that “The combined impact of rent reductions and reducing stock will result in £2.96 million less income in 2017/18, rising to £11.4 million a year in 2019/29. By 2019/20 annual income will be reduced by 14.2%.”
- Leeds. The council says in relation to the rent cut: “When compared to the level of resources assumed in the last approved Business Plan, the rent reduction policy equates to a loss of £283 million of rental income over a ten year period.”
- Newham. The rent cut will result ion the loss of £33 million by 2020> Potential loss of rental income over 30 years of £488 million.
- Newcastle. The council estimates it will lose £593 million over the course of its 30 year business plan as a result of the cumulative impact of the four year rent cut.
- Nottingham. The council’s capital investment programme will fall from £61million in 2017/18 to £33million as a result of shrinking resources.
- Reading. As a result of the four year rent cut the HRA will lose an estimated £233 million over the life of the Business Plan. Their plan to build 1,000 homes over 30 years was no longer affordable.
- Sheffield. Capital expenditure will fall from £70 million a year in 2016/17 to £55 million in 2021/22. Because of the loss of income it will “extend life cycles”; that is components will not be renewed when they should be.
- Swindon.The council is estimated to take in £365 million less over the course of the business plan compared to its 2012 projections.
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