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Implementation of the new rents policy Matthew Warburton - 04/07/2013

RentBook300ARCH has received a letter from DCLG explaining in more detail how the new rents policy announced last week is likely to apply to council housing.  The government proposes that, from 2015/16, council rent increases will be limited to the increase in the Consumer Prices Index (CPI) plus 1 per cent. There will no longer be an additional allowance for convergence with local housing association rents, despite the fact that in many councils rent convergence will not have been achieved by that time.

The reason given for linking rent increases to the CPI rather than the Retail Price Index (RPI) is that the National Statistician has advised that RPI "does not meet international standards";  CPI will provide "a more stable footing" for future rents.  Commenting on the impact of this change, CLG points out that, over the last twelve months, CPI has increased by around 0.5% less than RPI, which makes RPI plus ½% and CPI plus 1% equal. 

However, the letter fails to point out that the gap between CPI and RPI has been wider in the past and is expected to be wider in the future.  And in the Policy Costings published on the Treasury website last week, the change in policy is predicted to save over £700 million in housing benefit spending in the three years from 2015/16 - taking councils and housing associations together, which must imply that the government expects the new policy to lead to lower rent increases. 

The costings also predict additional savings of around £300 million over the same period from councils undertaking less new borrowing.

CLG will consult formally on the proposed changes in due course.

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