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Lib Dems vote to pool council borrowing limits Matthew Warburton - 19/09/2013

share_cash_300In a motion passed at their Annual Conference [Paragraph F (d) 2] on Monday this week, Liberal Democrats voted for councils to be able to pool borrowing limits, allowing councils with housing investment needs but no headroom to benefit from the headroom available to other councils. An amendment to scrap borrowing limits altogether was rejected on the advice of party leader Nick Clegg.

The motion also called for an urgent review of public borrowing definitions to examine whether the liabilities of public trading corporations, which would include council housing operations, could be taken off balance sheet, in line with practice elsewhere in Europe, "thereby allowing councils with a sustainable business model to invest in building more homes for rent".

In arguing for the conference to reject the amendment to scrap debt caps, Clegg made clear that he saw no prospect of getting Conservative agreement to such a policy. By implication, he may believe that debt cap pooling, on the other hand, has some chance of becoming government policy. However, it is unclear how such an arrangement could work. While the potential benefit to councils without headroom are clear, there is no obvious incentive for councils which currently have headroom to give it up.

There are various reasons why councils with borrowing headroom may not currently be planning to use it all, but one of them is that it provides a cushion against unforeseen investment needs in the future, a safety net they will not be keen to see removed. Any compulsion to share headroom should be rejected as contrary to the spirit of self-financing; it could become the first step on a road back to a subsidy system.

However, it is clear from the ARCH survey of council business plans that councils are currently planning to use less than half the headroom available to them. What could work is for government to agree to a selective raising of borrowing limits for councils with no headroom, secure in the knowledge that this could be safely assumed not to lead to overall council borrowing exceeding the amounts prescribed by the current borrowing limits.

The second part of the motion is entirely in line with the argument of the ARCH-supported publication 'Let's Get Building'. In the long run, this approach has the best prospect of putting council housing investment once and for all beyond Treasury interference, but it remains to be seen how much progress can be made with the policy this side of the general election.

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ARCH Member Comments 4 people like this

  • Liz Kenny, HouseMark - 19 September 2013

    Inside Housing is reporting that Lib Dem DCLG minister Don Foster, speaking at a fringe event after the debate Matthew writes about above, said:

    ‘It is absolutely essential we go to the next election with a manifesto that ensures local authorities are given the opportunity to invest in housing.’

    He described pooling limits – which would free up £2.3 billion by allowing councils that do not need all of their allocated borrowing headroom to give it to others – as ‘the first step’.

    But on lifting the cap entirely, he said: ‘I think it is vital we find a solution to those issues so we can go into the next election saying that.’

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