In a surprise announcement made in her speech to the
Conservative Party conference on 3 October, Prime Minister Theresa
May promised that the Housing Revenue Account (HRA) borrowing cap
would be "scrapped"
On the HRA borrowing cap, The Prime Minister said:
"………we will only fix this broken market by building more homes.
And that is what we are doing. More new homes were added to our
stock last year than in all but one of the last 30 years. But we
need to do better still.
The last time Britain was building enough homes - half a century
ago - local councils made a big contribution.
We've opened-up the £9 billion Affordable Housing Programme to
councils, to get them building again. And at last year's conference
I announced an additional £2 billion for affordable housing.
But something is still holding many of them back. There is a
government cap on how much they can borrow against their Housing
Revenue Account assets to fund new developments. Solving the
housing crisis is the biggest domestic policy challenge of our
generation. So today I can announce that we are scrapping that
A subsequent press release from the Ministry of Housing,
Communities & Local Government (MHCLG) seemed to
indicate that the debt cap would be scrapped completely saying in a
"Removing the borrowing cap entirely is also likely to diversify
the house building market, with councils being better able to take
on projects and sites that private developers would consider too
small. The cap will be lifted as soon as possible, with further
details confirmed in the Budget."
The inference from the Prime Minister's speech and the MHCLG
statement is that HRA borrowing caps will be removed completely and
councils will be free to borrow against their housing assets and
future rental income constrained only by prudential borrowing
rules. However it seems we will have to wait until the
Chancellor's Budget Statement on 29 October for further information
including details of exactly when the borrowing cap will be lifted
and whether there will be any conditions attached to the lifting of
the borrowing cap including any potential amendments to the Local
Government Prudential System and associated guidance on prudential
Responding to the Prime Minister's announcement, ARCH Chief
Executive John Bibby commented:
"In January 2015, prior to the General Election in May that
year, ARCH and the NFA launched a joint manifesto entitled "For a council housing renaissance"
In that manifesto we argued that there was a need for a
renaissance in council housing (or as the Prime Minister now puts
it: "a new generation of council housing") and, in order to achieve
this renaissance, the HRA debt cap must be removed. In that same
manifesto we also argued that the rules governing use of Right to
Buy receipts to finance the promised one for one replacement of
homes sold under the Right to Buy were unnecessarily bureaucratic
and inadequate to guarantee one for one replacement and that the
arrangements for use of Right to Buy receipts must be reformed if
the sector was to be enabled to deliver one for one
Those two major "asks" and the sought-for renaissance in council
housing seemed a long, long, way off when the incoming Conservative
government under David Cameron and George Osborne subsequently
introduced a 4 year 1% year on year rent cut and plans for a High
Value Asset Levy on councils' Housing Revenue Accounts to be funded
by the sale of so called "higher value" council housing.
It is therefore cause for celebration that some three and a half
years on from the 2015 General Election, the current Conservative
government has not only scrapped the idea of a High Value Asset
Levy, announced a new 5 year social rent policy from 2020 and is
consulting on proposals for significant relaxations to the rules
governing use of Right to Buy receipts but has now also announced a
scrapping of the HRA borrowing cap.
ARCH warmly welcomes all four measures but recognises that the
gauntlet has been well and truly thrown down and stock retained
councils must now rise to the challenge of delivering the promise
of "a new generation of council housing".
Councils have in the past faced criticism for their failure to
spend up to the existing borrowing cap and in response ARCH and the
NFA commissioned a detailed piece of research into the extent of so
called "under- utilised" HRA borrowing headroom amongst authorities
in England, the results of which were published late last year in
our report "Raising the Roof".
Through research commissioned jointly by ARCH we have also
demonstrated that investment in social housing can save post-Brexit
£billions in the long term and we have successfully
campaigned on behalf of our member councils to make the case to
- Lift the HRA borrowing cap
- Introduce greater flexibilities in the use of RTB receipts
- Scrap the High Value Asset Levy; and
- Re-introduce a long term policy for social rents
Subject to the promised further announcements on the lifting of
the borrowing cap and the outcome of consultations on the use of
RTB receipts, the stock retained sector will have achieved most of
what we have been asking for.
Councils are naturally prudent in the management of their
finances but, once the borrowing cap is lifted, the expectations on
councils to deliver significant new investment in housing will
increase substantially and I suspect this is what the Housing
Minister Kit Malthouse will say when we
meet him in a few weeks' time.
The next challenge for councils seeking to take advantage of the
scrapping of the borrowing cap will be one of building up their
capacity and developing the necessary skills and knowledge to
deliver new housing on a much larger scale than has hitherto been
possible. Through our New Build Network we will support ARCH
members to rise to that challenge "
ARCH will be watching carefully for further announcements on the
scrapping of the HRA borrowing cap in the forthcoming Budget and
will provide a detailed briefing for ARCH members in due