Underfunding of council housing – the impact on Bristol

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Underfunding of council housing – the impact on Bristol

Swindon Tenants Campaign Group has shown how the coalition and Tory governments have under-funded council housing. We have explained the impact on Swindon’s Housing Revenue Account (HRA). All local authorities that own council housing are being starved of funds as a result of ‘self-financing’, the new council housing finance system introduced in 2012 and policies implemented since then. More than £13 billion of extra ‘debt’ was loaded onto 136 councils in what was described as a ‘debt settlement’. What was said to be the national council housing debt, though largely fictitious, was redistributed amongst stock owning councils. The amount of debt each authority was given was based on an assessment of how much rent income they would collect over 30 years, the cost of managing the stock, and the number of homes expected to be sold under RTB (each one being rent income lost). To enable them to pay off this ‘debt’ each one was given a loan from the Public Works Loans Board (PWLB). To service this debt they are obliged to pay an annual interest charge to the PWLB. They have discretion on how they deal with the ‘loan’ itself, how much they pay each year towards paying it off. They were told that the settlement would ensure that all councils would have sufficient money to maintain their housing stock over 30 years. However, the 30 year business plans which councils had to draw up have been blown out of the water by changes which the coalition and Tory governments introduced. Here we look at the situation facing Bristol council’s HRA. (Read on below or download a PDF here bristolhra )
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Swindon Labour Group supports call for cancellation of council housing ‘debt’

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Swindon Council’s Labour Group has supported our campaign for Labour to press the government to reopen the 2012 ‘debt settlement’ and to commit to cancelling the bogus council housing ‘debt’ if elected to government. Below is Labour Group Leader Jim Grant’s letter to Jeremy Corbyn.

“Dear Jeremy,

I am writing to you on behalf of the labour Group of Swindon Borough Council to give our support to to the  growing campaign for an incoming Labour Government to commit to cancelling council housing debt . This campaign initiated by the Swindon Tenant Campaign Group  has two key elements

  • To re-open the 2012 debt settlement and write off council housing debt in line with the significant loss of rental income resulting from the governments’ policies since 2012
  • Commit to cancelling all council housing debt on election to government

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Leicester Labour Party supports call for cancellation of council housing ‘debt’

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Harry Stannard from Leicester sent us this report.

At its members’ meeting on January 10th, Westcotes branch of Leicester West CLP (Liz Kendall is the MP), passed the following resolution unanimously:

We welcome the Shadow Cabinet’s decision to call for the ‘Right To Buy’ in England to be suspended, and that rent control legislation should be introduced in the private sector.  Along with the Swindon Tenants Campaign Group we also recognise that council housing is facing a serious funding crisis as a result of the so-called ‘self-financing’ policy since 2010, which has led to a growing loss of rental income to local authorities.

We call on the Labour Party and in particular the Shadow Cabinet, National Policy Forum and Leicester City’s Labour group to:

1) Press the government to reopen the 2012 ‘debt settlement’ and demand that it reduces the debt given to local authorities in line with the loss of income resulting from government policies since then.

2) Make a commitment that in government they will cancel the so-called ‘council housing debt’ imposed in 2012, which is draining resources as rental income declines significantly. This should be part of our commitment to making a massive council house-building programme one of the corner-stones of a Labour government.

We resolve to contact the STCG to enquire more details of their campaign, and will send this resolution to our CMC and other branches in our CLP”

Westcotes is the second largest branch in the constituency, and the motion was seconded by one of its councillors, Andy Connelly, who is Leicester City Council’s Assistant Mayor for Housing. Andy explained how council house building in the City had almost dried up for lack of funds, whilst sales enforced on us by the so-called ‘Right to Buy’ are now running at over 300 per annum.

LRC calls for Labour to commit to cancelling council housing ‘debt’

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The National Executive of the Labour Representation Committee, chaired by FBU General Secretary Matt Wrack1, has passed a resolution supporting Swindon Tenants Campaign Group’s call (see our new pamphlet) for Labour to:

  • Press the government to reopen the 2012 ‘debt settlement’ and write off council housing debt in line with the significant loss of rental income resulting from government policies since 2012;

  • Commit to cancelling so-called council housing debt if elected to government.

The LRC agreed to write to the Labour leadership calling on them to support these proposals. It also agreed to circulate its affiliated organisations to ask them to do likewise. More

“The case for cancelling council housing ‘debt’”

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Swindon Tenants Campaign Group’s new pamphlet, The case for cancelling council housing ‘debt’, aims is to raise awareness of the scale of the funding crisis which existing council housing is facing and to promote measures which will resolve this crisis. It calls on Labour to address this crisis by

  • Pressing the government to reopen the ‘debt settlement’ of 2012, and

  • Committing to cancel the Council housing ‘debt’ if elected to office.

Below we explain why these measures are necessary.

Council housing funding crisis

Council housing is 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 Accounts1 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. Swindon was given an extra £138.6 million debt which costs more than £9 million a year to service. Even an authority like Leicester, which was one of the 34 which had their debt reduced, still pays £9 million a year to service theirs. More

Starving Council housing of funds: An update

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Swindon Council’s June Cabinet meeting had before it a Medium Term Financial Plan for the Housing Revenue Account (HRA), the separate account for Council housing. Since there is no government subsidy for the HRA it is entirely dependent for its income on rent and service charges paid by its tenants. However, the rent it charges is determined by central government. So it has no direct control over its income. For instance, the current government decided that Councils would have to cut rent by 1% each year for the next four years. This has completely disrupted planning to maintain the standard of housing. Government rent setting regulations had previously set increases for ten years at the level of the Customer Price Index + 1%. However, this commitment was abandoned and the rent cut imposed. As a result the loss of rent was expected to be £22.8 million. Subsequently the government decided to allow Councils to exclude supported accommodation for elderly and disabled people from the rent cut (at least for this year) and allow them to increase rent under the old formula. Swindon increased rent for these people by 0.9%. However, the loss of rent overall during those four years is still estimated at around £22 million. (Read on below or dowmload a PDF here starvingchupdate )
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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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