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Treasury Committee supports ARCH calls for removal of HRA borrowing cap 01/02/2018 Labelled as Development, Finance

In a further sign that we are beginning to win the argument for lifting of Housing Revenue Account debt caps, the Treasury Committee has published a unanimously agreed report on the 2017 Autumn Budget and supported ARCH calls for the Local Authority Housing Revenue Account (HRA) borrowing cap to be removed to help meet the government's target of 300,000 new homes per year.


In our joint submission with the NFA made to the Treasury prior to the 2017 Autumn Budget ARCH called on the Chancellor to empower Local authorities to build more homes by:


  • Giving councils back control of their housing assets and revenue by committing to the principles of HRA self-financing for council housing under the Localism Act 2011 which has the potential to drive a real revival in public investment in council housing if properly supported; and,


  • Lifting the HRA debt caps for new build purposes and relying instead on prudential borrowing rules to enable councils to invest in new homes and pay back the money from their rental income.


ARCH welcomed the Chancellor's announcement in the Autumn Budget that councils would be able to bid for an additional £1billion borrowing headroom available over 3 years from 2019 but ARCH argued that it did not meet our demands and now the influential Treasury Committee in its examination of the Autumn Budget has supported our call for removal of the HRA borrowing cap.


In their Report, the Treasury Committee say:


"The decision in the Budget to raise the HRA borrowing cap by £1billion is a positive step. However, in order to increase local authority construction to levels sufficient to meet the government's 300,000 target, the HRA borrowing cap should be removed."


The report goes on to say:


"Raising the cap would have no material impact on the national debt, but could result in a substantial increase in the supply of housing, allowing local authorities to determine the level of additional housing need in their area"


The Treasury Committee Report also criticises the government for failing to clarify the bidding criteria for allocation of the additional £1billion borrowing headroom saying:


"The bidding process proposed by Treasury to allocate the £1billion of local authority HRA headroom may not direct resources to areas of greatest housing need. The criteria for allocation are currently unclear"and the report goes on to say that"The treasury should establish clearly defined needs based criteria for allocating the additional borrowing".This is something that ARCH Chief Executive has already raised with officials at the Ministry amid concerns that if the criteria is too tightly constrained and conditions too onerous there is a danger that the bidding process may be undersubscribed and the opportunity lost.


Commenting on the Report, Conservative Chair of the Treasury Committee, Rt Hon. Nicky Morgan MP said:


"The Chancellor pledged to 'fix the broken housing market', but the Government is going to find it very difficult to meet this ambition. The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn't go far enough.


The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the Government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed."


Read the Treasury Committee's full report

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