Why Labour should write-off the fictional Council housing ‘debt’

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In order to stop the rise in Housing Benefit payments the government has imposed on local authorities which still own their Council housing stock, a 1% cut in tenants’ rent, for four years, starting in April of this year. By this and other policies Council housing is being seriously under-funded. In order to understand the extent of the problem and what to do about it it’s necessary to appreciate how Council housing is financed under the system known as ‘self-financing’.

‘Self-financing’

In April 2012 a new Council Housing finance system, ‘self-financing’, was introduced. The system had been designed by the New Labour government just before it lost the 2010 General Election and was implemented by the coalition government. Housing Minister Grant Shapps said that the new system would “give Councils the resources they need to manage their own housing stock for the longer term – correcting decades of under-funding”. In fact under-funding was not corrected but built into the new system (see Appendix). Most Councils did have more money than they had under the previous system because what was known as a ‘negative subsidy’ was ended. In 2005 the Audit Commission reported that 82% of local authorities were subject to ‘negative subsidy’, meaning they received no government subsidy and had to make a payment to central government from their rent income. According to the Audit Commission at the time this comprised some £630 million a year. Whilst some of this was redistributed to other Councils, in the four years from 2008 tenants’ rents subsidised the Treasury to the tune of almost £1.5 billion1. It was predicted that if the old system, the ‘housing subsidy system’, continued, then eventually all local authorities would suffer from ‘negative subsidy’, largely as a result of year on year rent increases above the level of inflation.

(Read on below or download a PDF here chdebtwriteoff )
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‘High value’, ‘higher value’, what’s in a word?

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A worrying amendment to the government’s Housing and Planning Bill may have an even bigger impact on the number of Council homes which could be sold off on the market. The Bill included the enforced sale of ‘high value’ homes when they become vacant. Prior to the General Election a conservative party document referred to “the most expensive third of all properties in their area”. The Conservative Manifesto itself referred to “the most expensive Council properties being sold off and replaced” when they became vacant.

Councils have been awaiting regulations from the minister determining how ‘high value’ would be measured. However, the government has now proposed an amendment which refers to “higher value stock”. The amendment, by implication could mean anything above the average value. Even worse another amendment tabled this week states that the government will be able to “use any category of housing that the secretary of state considers appropriate as a comparator”. This would in effect give the minister the absolute power to not only determine how much stock Councils had to sell, but to change the regulation at will if he thought that they weren’t selling enough. Clearly, the proposed amendments are in breach of their manifesto.

If implemented this could not only decimate Council housing numbers but lead to the deterioration of the remaining stock. Under the new financial system, ‘self-financing’, introduced in 2012, Councils were given a ‘debt’ level which was based on an assessment of how much rent Councils were expected to take in over 30 years. The more homes that are sold the more rent is lost. Councils are already losing a great deal of rent as a result of the 1% rent cut which central government is imposing over the next 4 years. Swindon will lose more than £22 million. More

Housing Association mega-merger abandons ‘social rent’ new build

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Inside Housing reports that:

“Three of London’s largest housing associations are planning to form a mammoth 135,000-home social landlord capable of building 100,000 homes in 10 years.”

This is the latest in the growing trend towards amalgamations and commercialisation of the sector. The key thing to note is the breakdown of the 100,000 homes they intend to build over 10 years.

50,000 for market rent and sale
25,000 for”affordable rent” (up to 80% of market rent) and
25,000 for ‘low-cost ownership’ for first time buyers (presumably ‘Starter Homes’). More

Suspend ‘debt’ payment

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Suspend ‘debt’ payment

The heading of the Advertiser article, “Fears rent cut may hit home repairs budget” was misleading. It is not just a fear. The loss of income from rent will hit the budget for replacing components such as kitchens, bathrooms, roofs etc. The article neglected to point out how much money would be cut despite the fact that our press release included a table showing the cuts in spending for these components. For instance in 2016/17 £2.150 million will be spent on installing new kitchens. However, in each of the following two years only £1 million will be spent. The cuts over 2 years, in comparison with spending in 2016/17 will be: aids & adaptions – minus £400,000, bathrooms – minus £720,000, central heating – minus £990,400, kitchens – minus £2,300,000, roofs – minus £852,000. This adds up to a cut of £5,262,400 over the two financial years 2017/18 and 2018/19. More

Underfunding of Council housing

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Media Release: Swindon Tenants Campaign Group March 14th 2016

Tenant reps on Swindon Council’s Housing Advisory Forum (HAF) opposed the 3 year Housing Investment Programme which officers were recommending for the Cabinet to agree. The programme includes major cuts in replacement of housing components such as kitchens and bathrooms (see table below). Tenants opposed it because it would create a significant backlog of work, which would cost more in the future.

The cuts included in the proposed programme are the result of two things:

  • the loss of rental income resulting from central government policies, including the decision to cut ‘social housing’ rents by 1% a year for 4 years, beginning in April 2016;

  • a significant increase in spending on non-traditional (prefabricated) stock .

The rent cut alone means that Swindon is expected to take in £22.8 million less rent than it had planned for. The government has imposed the rent cut not because of any concern for tenants but to cut housing benefit paid to ‘social housing’ tenants. It has taken no account of the financial impact on local Housing Revenue Accounts. More

Government response to ‘pay to stay’ consultation

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The government has just published it’s response to its consultation on ‘Pay to Stay’, the policy which will make Council Housing tenants subject to pay up to the level of a market rent if their household income1 is £30,000 and above, £40,000 in London. The consultation was only on “the design of certain aspects of the policy” rather than on whether or not the policy itself should be introduced.

It asked just three questions:

QUESTION 1A – How income thresholds should operate beyond the minimum threshold set at Budget, for example through the use of a simple taper/multiple thresholds that increase the amount of rent as income increases. (Download a PDF here paytostayresponse or read on below)

QUESTION 1B – Whether the starting threshold should be set in relation to eligibility for Housing Benefit?

QUESTION 2 – Based on the current systems and powers that Local Authorities have, what is your estimate of the administrative costs and what are the factors that drive these costs?

In what is surely one of the briefest responses to a consultation we have learned that:

  • A taper will be applied above the minimum income thresholds. “Further detail on the operation of the taper will be set out in due course but we would design this so that households at the lower end of income above the proposed threshold will see their rent rise by only a few pounds each week. ”

  • The Government agrees that it should not be the case that those who are in receipt of housing benefit should be subject to increased rents, as the rent rises would simply need to be covered by the taxpayer. Households in receipt of housing benefit will therefore be exempt from the policy.”

  • The Government will allow local authorities to retain a reasonable amount of administrative costs. The amount that can be retained will be subject to further discussions with the sector about what a reasonable level would constitute.

The operation of a ‘taper’ means that people earning just above the threshold won’t find themselves facing a massive increase. However, we don’t know how shallow or steep the taper will be. Reports in the media suggested that the full rent would be charged at £50,000. We won’t know until the Minister issues regulations.

The taper will make it more complicated for Councils to keep up to date with changing information as the circumstances of the tenant change; consider somebody doing irregular overtime. In practice it may only be possible to check on an annual basis.

‘High earners’ in receipt of housing benefit

That the government has had to concede that people in receipt of Housing Benefit will not be subject to ‘pay to stay’ shows how absurd was it’s assertion that this was a policy for ‘high earners’. As Shelter pointed out two adults working full-time on the minimum wage would earn £27,000. Moreover, it is said to be a means of ‘supporting work incentives’. Yet anybody in receipt of housing benefit would be stupid to take a promotion or pay rise if it would put them above the level at which they would cease to qualify for housing benefit or be subject to ‘pay to stay’ and face increased rent. Some ‘work incentive’!

What constitutes a ‘reasonable level’ of costs for Councils having to carry out an ongoing assessment of tenants’ income is a thorny question. We shouldn’t expect the government to be too generous. Whilst Housing Associations can keep all the extra money they take in from ‘pay to stay’ the government decided that it was going to take the money Councils took in to go towards paying off the national debt! So it won’t want to relinquish too much of that.

The myth of “subsidised” rents

‘Pay to stay’ itself is based on the false premise that “housing in the social housing sector offered at subsidised rents should go to those people who genuinely need it .” Council rents are in fact not subsidised. They are lower than market rents because they were not built to make a profit as housing is in the private sector. There was an element of subsidy in the distant past but that was at a time when mortgages were subsidised as well. Indeed at times the subsidy for home owners was higher than the subsidy for tenants.

Today, the Housing Revenue Account under which Council housing operates, receives no subsidy whatsoever. Indeed in 2012 when a new Council housing finance system was introduced Councils were burdened with extra ‘debt’ which was not the result of actual borrowing but was a product of ‘creative accountancy’ by the Treasury. Ironically, today the only subsidised rents are those paid for by housing benefit, and the government is proposing to exclude recipients of it from being subject to ‘pay to stay’!

The policy was originally introduced as a voluntary one with a household income of £60,000. Hardly any local authorities introduced it, Tory ones included, because they considered it to be an onerous administrative job, not worth the effort. So the government which talks of ‘localism’ and ‘giving power back’ to the localities, has introduced yet another central government diktat.

One of the consequences of ‘pay to stay’ is likely to be that anybody who faces increased rents is likely to take advantage of ‘right to buy’, if they can secure a mortgage. This will mean that Councils will lose even more income as the rent they take in declines. Since rent (and service charges) are the only income which Councils take in then they will have less resources for the maintenance of their shrinking housing stock.

Martin Wicks

March 11th 2016

1Either an individual or two earners.

Dear Jeremy and John: Why Council housing ‘debt’ should be written off

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An open letter to Jeremy Corbyn and John McDonnell on the under-funding of Council housing and Labour’s housing policy

From Swindon Tenants Campaign Group

Dear Jeremy and John

Jeremy’s election as Labour leader reflected a desire on the part of existing Labour Party members, the new members, re-joiners and registered supporters, for a break with politics of New Labour. One of the critical aspects of such a break is in relation to housing. New Labour did not just ‘do too little’ in relation to the housing crisis. It set out to wipe out Council housing by means of transferring stock to housing associations. This policy was premised on making housing debt ‘off balance sheet’. Moreover, to encourage tenants to vote for transfer housing debt was written off just so long as they voted the ‘right way’. New Labour also maintained Thatcher’s disastrous ‘right to buy’ and worshipped home ownership. It was only after the global crisis and the UK housing market crash that they ended their ban on local authorities bidding for ‘social housing’ grant, and even that was on a puny scale.

In contrast you have raised the need for large scale Council house building which is essential to tackle the housing crisis. However, a question yet to be addressed is the problem of under-funding of Council housing resulting from the new Council housing finance system drawn up by New Labour and implemented by the coalition government. Subsequent changes in policy by the coalition and by this Tory government have now made the funding crisis for Council housing even worse. It is this crisis which we think Labour under your leadership needs to address, both in terms of your Party’s policy and in challenging this government on the impact of its policies on Council housing funding. It’s this issue that we address in this letter. (Read on below or download a PDF here dearjeremy ) More

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