What’s the Answer?

Council housing in Shepway & across the country facing a serious funding crisis. Government policies since 2010 are responsible for a significant decline in the income local authorities collect from tenants’ rent. In 2012 a new council housing finance system, self-financing, was introduced. Under this system local authority Housing Revenue Accounts (1) receive no subsidy. Their income is overwhelmingly from tenants’ rent and service charges (around 91%)(2). In ending the old housing subsidy system, the government divided up what it said was the national council housing debt, and redistributed it amongst councils. More than £13 billion extra debt was imposed on 136 local authorities, whilst 34 had some debt relief. Councils have to repay the principal (the original ‘loan’) and pay interest annually. So hundreds of millions of pounds a year have to be paid to the government’s Public Works Loan Board. This is money which cannot be spent on the upkeep of homes. Shepway was given an extra £40.1 million debt; which will cost a little over £17 million to service, according to SDC’s own figures. Meaning £57 million will be repaid in total by SDC.

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To break it down year by year SDC will pay the following between 2013 -2031

For the introduction of the new system SDC had to draw up a 30-year-business-plan. The amount of debt each authority was given was based in large part on an estimate of their income from rent over these 30 years. But no sooner was self-financing introduced than the coalition government introduced policies which undermined these plans. They

• Changed the rent formula that councils had to apply to rent increases;

• Increased the discounts for Right to Buy leading to a massive increase in sales;

• Imposed a 1% rent cut for 4 years.

The result of these policies has been that rent income is much lower than planned for in 2012. The 1% rent cut alone is expected to result in a loss of 12% of expected income. Shepway is currently estimated to take in £15.8 million less rental income over the remainder of the business plan period than was planned for in 2012.

Now the government’s Housing & Planning Act, has been implemented(3), will mean councils losing even more income as a result of the extension of Right to Buy to housing associations. The Act instructs councils to sell ‘higher value’ homes on the open market, when they become vacant. The money will be used to compensate housing associations for the difference between the discounted Right to Buy price and the market value. Effectively the receipts for these sales will be stolen.

The so-called housing debt was the result of creative accountancy by the Treasury rather than actual borrowing by local authorities. When the new finance system was introduced the government made an £8 billion surplus which was simply pocketed by the Treasury. Council tenants have been fleeced for many years. In reality they have paid more in rent that the debt associated with the cost of building programmes. (see A debt to tenants – why ‘historic debt’ should be written off.)

So what’s the answer? How do Shepway overcome this shortfall in income? We hope it won’t be a massive hike in rents for those in Council Housing.

Shepwayvox

1 This is an account ‘ring-fenced’ within a Council’s General Fund, in effect making sure that council tax isn’t used for housing and tenants’ rent isn’t used for other services.