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Treasury plans throw council housing programmes into doubt

Some of the most ambitious council housing building programmes for decades have been put into jeopardy by the surprise Treasury plan to seize control of local authority rent levels

The AJ’s sister title Local Government Chronicle has revealed that Treasury officials have been warned by the Chartered Institute of Housing that the shake-up of ‘social rent’ policy unveiled during the spending period announcement will pull £1.2 billion from council housing budgets over the next decade.

The policy will cut short an arrangement that allowed councils to align rents with those charged by housing associations and undermines key assumptions in their 30-year housing budget plans (see box below).

LGC has reported that ministers are preparing to take a hard line on enforcing the rent policy as the Treasury is concerned that councils will refuse to comply. This includes the option of central regulation of council rents for those who refuse.

CIH predicts that the authority hardest hit by the policy will see £300 million stripped out of its housing revenue account, a budget councils have only controlled since April last year. Until then the account had been in the Treasury’s hands.

Social Rent Policy:

The Treasury’s new social rent policy has two key elements. The first cuts short ‘rent convergence policy’ one year early. Introduced by the previous Labour administration, this had allowed councils to bring their rent levels into line with those of higher-cost housing associations. Without the extra year, most authorities will be left out of pocket.

The second change is a new ‘rent formula’ which states that social rents should increase by CPI +1 per cent for 10 years from 2015-16. The Treasury estimates that both policies could save the exchequer £1 billion between 2015-16 and 2017-18, a sum which depends on whether councils will toe the policy line.

‘The main uncertainty [about the savings] is the behavioural response from local authority landlords,’ Treasury documents say. The CLG is therefore considering rent regulation.

Croydon LBC, which is hoping to build almost 2,000 homes a year, has calculated that the changes could suck £254.8 million out of its HRA. Such a loss would force it to ‘fundamentally review’ its business plan, according to Richard Simpson, its director of finance and assets.

Camden LBC has warned that the new policy could substantially heighten the risk of its 1,100 house-building programme. Its £400 million plan to refurbish existing stock might also have to be put back, a spokeswoman said. Investment decisions would become ‘more difficult and risky’, she added. ‘The potential loss of revenue has been estimated at £75 million over a 10-year period.’

The threat of centrally imposed rent controls comes at a time when councils have just begun gearing up for large-scale house-building schemes. Camden and Croydon’s house-building plans would dwarf the tiny numbers of new local authority homes built during the past two decades.

Reliable evidence of the new rent policy’s impact has only just emerged, following detailed analysis of the proposals by the Chartered Institute of Housing and consultancy Sector.

Abigail Davies, assistant director of policy and practice at the institute, said the changes would over 10 years cost around 125 authorities £1.2 billion in ‘net present value’. This takes into account economic projections and is understood to be the most accurate representation of the impact to date.

The hardest-hit authorities are in London and the South-East, with around 24 authorities losing more than £10 million each, according to the CIH. ‘There are some councils which will be very severely affected,’ Ms Davies said.

Sector’s analysis of the government’s new ‘rent guarantee’ suggests that it could see £250 million pulled out of many councils’ housing budgets.

The guarantee expects all social landlords to increase rents by the consumer price index +1 per cent for 10 years from 2015-16. Until now, councils assumed rents would rise by the retail price index +0.5 per cent for three decades, as government policy papers had indicated.

Ian Green, a manager at Sector, said it was acting for several concerned councils. ‘The worry for local authorities is that at the end of 10 years, the government will change it to CPI only,’ he added. ‘If they do that, it will have a substantial impact.’ 

Ms Davies urged ministers not to undermine council-housing investment so soon after local authorities had regained control of their budgets. A spokeswoman for CLG described the new rent policy as a ‘fair deal for tenants and landlords’.

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