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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‘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

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

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

Starving Council Housing of funds

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Time to re-address the Council housing ‘debt settlement’

In April 2012 a new Council Housing finance system, ‘self-financing’, was introduced. The system had been designed by the New Labour government but was introduced 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). 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 subsidy and had to make a payment to central government from their rent income. According to the Audit Commission 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 starvingchoffunds) More

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