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Let’s get building Matthew Warburton - 22/11/2012

Debt_rub-out_300Government action to ease debt caps would allow councils to build 60,000 much needed new homes over the next five years, boosting Britain's GDP by 0.6 per cent.

 

This is the central message of Let's Get Building, published today by the National Federation of ALMOs in association with ARCH, CIH and the Local Government Association, with the support of the Councils with ALMOs Group.

The report makes the case for a construction-centred stimulus to the economy, arguing that 92p of every £1 spent on building homes stays in the UK and, where public investment is involved, 56p of that returns to the Exchequer, including direct savings in tax and benefits of 36p.

But while Government action earlier this year focused largely on boosting private construction for sale and market rent, this report marshals the arguments for extending the stimulus to include council housing.

Estimated demand for new homes at below-market rents is at least 80,000 units per year, compared with current targets of just over 40,000, nearly all of which will be provided through the HCA Affordable Rent programme at rents up to 80 per cent of market levels.

Councils have the capacity within the debt ceilings imposed on HRA borrowing to provide maybe 3,000 additional units a year over the next five years, where needed at social rents.

However, relaxation of the debt caps would unlock the potential to build many more, perhaps 12,000 a year according to provisional results from the ARCH-sponsored survey of council business plans now in progress.

This would not involve a long-term increase in council borrowing but merely giving councils the opportunity to bring forward borrowing that currently would not be possible for several years. All borrowing would be within prudential limits and could be comfortably repaid from rental income over the 30 years of the business plan.

The report also makes the case for changing the way council borrowing for housing is treated in the public accounts, to bring it into line with international norms. The UK is unique in Europe in lumping together government borrowing, which is a charge against future tax income, with borrowing by public corporations, which is repaid from trading income and therefore has a quite different economic impact.

ALMOs are public corporations. Council housing operations, because of the HRA ring-fence, are classed by ONS as public quasi-corporations, which behave like corporations.

The implication of changing the accounting treatment would be to put borrowing by public corporations outside the remit of the government's deficit reduction strategy, leaving the amount of borrowing to be determined by prudent judgements about future trading income - in the case of councils, the existing code on prudential borrowing.

The Chancellor's Autumn Statement is due on 5 December - a golden opportunity to put councils at the heart of national action to rebuild the economy.

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