Housing Minister Grant Shapps today announced the steps Government will take to overhaul the complex system of council house finance and return financial control to councils themselves - enabling them to offer a better deal to England’s four million council tenants.
Today’s route map to deliver a more transparent and accountable system of council house financing that places councils firmly in the driving seat is part of the Government’s wider programme of devolving more financial freedom to councils.
As part of this Mr Shapps announced an extra £116million funding allocated each year for councils to pay for disabled adaptations to homes and an extra half a billion per year for councils to spend on their stock. He said that these reforms will ensure councils can plan effectively for the long term - enabling them to unlock over £6 billion estimated efficiency savings over 30 years which they will be able to plough into new investment.
Following the review announced in the Coalition Agreement, Ministers announced in October that they would replace the Housing Revenue Account subsidy system where councils are required to pay council house rents to Whitehall which decided how best to redistribute it. This meant that councils had no certainty about future income, no ability to plan long term and little incentive to be more efficient.
This opaque, centralised system will be replaced with one that provides a direct link between the rents councils charge, the money they spend, and the services they deliver. This means tenants and local taxpayers will be able to hold their landlord to account for the cost and quality of their housing. This will be achieved via a reallocation of housing debt after which councils will retain all the rental income they collect.
The Localism Bill, to be published today, will include measures to repeal the existing subsidy system and replace it with powers for the Secretary of State to introduce self-financing. Subject to Parliamentary approval these changes will begin in April 2012. The current system will continue to run during 2011/12.
Grant Shapps said:
For far too long, councils have been frustrated in their efforts to meet the housing needs of their tenants by a discredited system for financing council housing. Our new approach will devolve power and sufficient resources to councils to enable them to offer a better service to tenants. And tenants and local taxpayers will be able to hold their landlord to account for the cost and quality of their housing.
Today I am setting out the steps we will take to deliver this more transparent and accountable system fairly and openly based on accurate valuations. These reforms are part of our wide-ranging programme of pushing power away from Whitehall to town halls and local areas. We estimate that by putting councils firmly in control of council house finance they can unlock over £6 billion of efficiency savings which they will be able to plough into new investment.
We are committed to helping the most vulnerable people in our communities so as part of this deal I am pleased to announce an extra £116 million a year to help councils prioritise adaptations for disabled residents. This will make a huge difference to thousands of people across the country - in many cases ensuring they can continue to live independent lives. We are also correcting decades of under-funding in the sector by providing around half a £ billion of extra funding for councils to spend on their stock each year.
Notes for editors
The precise details of the self-financing settlement will continue to be finalised over the next year to ensure they take account of any relevant changes in economic circumstances - for example up to date valuations of each councils housing stock. Government will then confirm that the settlement is fair and sustainable and should be implemented in 2012 (subject to Parliamentary approval).
The method for calculating the debt reallocation will be based on a 30 year notional business plan of income and expenditure for each landlord. A payment to or from each council will then be made to reflect the difference between the value of the business and the housing debt currently supported under the HRA. Income assumptions built into the valuation will be based on the existing social rent policy for councils that that their rents should converge with standard housing association rents in 2015/16.
How these reforms will work in practice, together with the underpinning model including updated indicative numbers per council will be set out in a policy document in the New Year. This will also set out the updated methodology in more detail and will incorporate the following parameters:
- a discount rate of 6.5 per cent for calculating the net present value of each council’s housing business;
- providing for realistic expenditure for management, maintenance and major repairs as identified in independent research published last year, increasing the costs used in the valuation by an average of 11.7 per cent;
- £116 million of extra funding each year for councils to pay for disabled adaptations to their stock;
- funding for Treasury Management costs and to reflect planned demolitions;
- Government continuing to pay subsidy to local authorities for the PFI schemes currently funded through the HRA;
- 75 per cent of net receipts from any Right-to-Buy sales continuing to be returned to the Exchequer. Estimates of the loss of income from RTB sales will be built into the valuation of each council’s housing business. Receipts from other disposals will continue to be held locally to spend on affordable housing or regeneration; and
- Council landlords being subject to a cap on overall housing borrowing for each local authority. This cap will be linked to the opening debt level under self-financing.
Using today’s figures, economic assumptions and these parameters, the net receipt to the Exchequer from these transactions is projected at approximately £6.5 billion. These will be updated in the model issued alongside the policy document expected in the New Year and before the implementation of self-financing using the latest data and economic assumptions.
This projected receipt includes £1.2 billion attributable to the decision to continue funding PFI separately. Local authorities with PFI schemes will share this extra amount but will continue to receive subsidy. This was the option preferred by all local authorities with PFI schemes.
Keep up to date with the Department by following us on Twitter (external link).
Visit our newsroom contacts page for media enquiry contact details.