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Treating council housing fairly Matthew Warburton - 13/12/2013

Bricks300Bringing UK public sector borrowing rules into line with international practice would free councils to build an extra 60,000 homes over the next five years.


This is the central message of Treating Council Housing Fairly, a new publication from the National Federation of ALMOs which restates and updates the argument developed in Let's Get Building, published with ARCH's support last year. Its launch is timely as it highlights just how tame and lacking in imagination is the Government's proposal to deliver at most 10,000 homes through release of additional borrowing.

The UK is out of step with most of Europe in the way it treats public borrowing. International accounting practice divides the public sector into three parts - central government, local government and public corporations. Public corporations are government-owned or government-controlled trading bodies that make an economically significant charge to consumers for the goods and services they provide, as distinct from government services which are provided free or with only nominal charges to consumers, and predominantly funded from taxation.

On these definitions, ALMOs are clearly public corporations. Local authority housing services are classified as public "quasi-corporations" - classified with public corporations - because the HRA ring fence separates rent-financed services from other local authority spending.

As far as the IMF and financial markets are concerned the key measure of government indebtedness is the general government deficit - borrowing which will have to be repaid from future taxation. This is the measure most other European countries use in reporting and managing government debt. It excludes borrowing by public corporations and quasi-corporations. The UK government's austerity measures, in contrast, treat borrowing by government and public corporations as if they were identical. This leads to some perverse results.

As far as the UK Treasury is concerned the cost to the public sector of funding a new housing association home is just the £20,000 paid in government grant, while a new council home scores as £116,000 because the whole cost counts as government spending, even though its unit cost is actually below the average housing association new build cost of £127,000 (2011/12 averages). Or, looking outside the housing sector, government-owned companies are rarely used to provide services because their lack of borrowing freedom makes them uncompetitive.

Meanwhile, companies owned by foreign governments play a major role in public transport (Arriva buses) and energy supply (EDF) because their borrowing is treated differently in their home countries.

There is a consensus across all the main parties that housing output needs to grow to at least 200,000 homes a year. On convincing estimates, around a third of these homes will need to be provided at sub-market rents - which would involve doubling the combined output of councils and housing associations. To make this happen, a fresh approach is needed. Reform of the borrowing rules could be an important part of it.


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