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Start from scratch on housing finance, says ARCH

The Association of Retained Council Housing (ARCH) is urging the Government’s review of housing finance to scrap the existing system and draw up a new, fairer one from scratch.

ARCH’s secretary, John Bibby, director of housing and community services at Lincoln City Council, said: ‘The current system is utterly unfair, unfathomable, unpredictable and unworkable.

‘The Housing Revenue Account is moving into a surplus of more than £190m at the same time as the national affordability crisis is really biting.’

He continued: ‘Council residents who have voted for their local authority to be their landlord are paying millions of pounds into the Exchequer’s pot nationally. But they have no guarantee the money they contribute in rents will be spent on much-needed building and maintenance of homes in local communities.

‘The Government’s review of housing finance needs to start from scratch and come up with an approach that is more equitable, transparent and sustainable. ARCH will be developing its own detailed proposals for doing so in the months ahead.’

The principles of ARCH’s position on funding for local authority housing were set out when members met for its Annual General Meeting in London on 2nd July. ARCH is developing its detailed proposals on housing finance as part of the review of the Housing Revenue Account (HRA) subsidy system being conducted by the Departments for Communities and Local Government and HM Treasury.

The principles behind ARCH’s proposals for a new regime will be as follows:

  • The existing HRA mechanism should be dissolved rather than reformed.
  • Councils should have self-determination on housing finance.
  • Retained stock authorities should have sufficient resources – raised through grants, borrowing, rents and asset management – to manage stock effectively.
  • Retained stock authorities should be able to borrow money to manage improvements and replenish stock.
  • Rent determination should be a local decision.
  • Transitional arrangements must be put in place to enable stock retainers to move to a new, fairer regime without prohibitive ‘buying out’ costs.

Senior housing officials from stock retained authorities, who took part in a survey by ARCH, argued that there was nothing in the present system they would wish to keep. Typically, respondents were getting back less than 25% of what they were contributing. One officer commented: ‘We collect £12m in rent and £4m goes straight to the Government.’

ARCH is a cross-party body which represents councils whose tenants have voted for their local authority to be their landlord. It argues that the current regime means many councils are unable to plan for long-term investment and are in “negative subsidy” – which means tenants’ rents being paid back to central government. Local authorities in negative subsidy are contributing vastly more than they are taking out of the national Housing Revenue Account.

The figure for authorities in negative subsidy is set to increase year on year, as the impact of Right to Buy affects stock numbers until eventually all authorities will be in negative subsidy.

The redistributive ‘pool’ is in surplus, with council housing rent payers contributing through the overall surplus nearly £0.2billion to the Treasury. Councils and their tenants have no guarantee that this surplus will then be spent on housing and not health, education or another area. In effect council rent payers are paying an additional tax to Government and as the table below shows this surplus is expected to increase to £0.4billion in 20011/12, £0.7 billion in 2019/20 and £0.9 billion by 2022/23.

  • HRA subsidy (£ million)
  • 2008-09              -194
  • 2009-10              -216
  • 2010-11              -303
  • 2011-12              -421
  • 2012-13              -424
  • 2013-14              -376
  • 2014-15              -398
  • 2015-16              -434
  • 2016-17              -476
  • 2017-18              -543
  • 2018-19              -611
  • 2019-20              -680
  • 2020-21              -750
  • 2021-22              -822
  • 2022-23              -894

Source: Parliamentary Question 18/12/2007

FOR FURTHER INFORMATION CONTACT: ARCH’s secretary, John Bibby, director of housing and community services, at Lincoln City Council, email: arch@lincoln.gov.uk