Treasury rent control threatens house building

Yet another way for this government to milk the local government cash cow.

Copied from LGC online
22 August 2013 | By Keith Cooper

Some of the most ambitious council housing building programmes for decades have been put into jeopardy by the surprise Treasury plan to seize control of local authority rent levels.

Officials have been warned by the Chartered Institute of Housing that the shake-up of ‘social rent’ policy unveiled during the spending period announcement will pull £1.2bn out of council housing budgets over the next decade.

The policy will cut short an arrangement that allowed councils to align rents with those charged by housing associations and undermines key assumptions in their 30-year housing budget plans.

LGC understands ministers are preparing to take a hard line on enforcing the rent policy as the Treasury is concerned that councils will refuse to comply. This includes the option of central regulation of council rents for the refuseniks.

CIH analysis predicts that the authority hardest hit by the policy will see £300m stripped out of its housing revenue account, a budget councils have only controlled since April last year. Until then the HRA had been in the Treasury’s hands.

Croydon LBC, which is hoping to build almost 2,000 homes a year, has calculated that the changes could suck £254.8m out of its HRA. Such a loss would force it to “fundamentally review” its business plan, according to Richard Simpson, its director of finance and assets.

Camden LBC has warned that the new policy could substantially heighten the risk of its 1,100 house building programme. Its £400m plan to refurbish existing stock might also have to be put back, a spokeswoman said. Investment decisions would become “more difficult and risky”, she added. “The potential loss of revenue has been estimated at £75m over a 10 year period.”

The threat of centrally imposed rent controls comes at time when councils have just begun gearing up for large-scale house building schemes.

Camden and Croydon’s house building plans would dwarf the tiny numbers of new local authority homes built during the past two decades.

Reliable evidence of the new rent policy’s impact has only just emerged, following detailed analysis of the proposals by the Chartered Institute of Housing and consultancy Sector.

Abigail Davies, assistant director of policy and practice at the institute, said the changes would over 10 years cost around 125 authorities £1.2bn in ‘net present value’.

This takes into account economic projections and is understood to be the most accurate representation of the impact to date.

The hardest hit authorities are in London and the southeast, with around 24 authorities losing more than £10m each, according to the CIH. “There are some councils which will be very severely affected,” Ms Davies said.

Sector’s analysis of the government’s new ‘rent guarantee’ suggests that it could see £250m pulled out of many councils’ housing budgets.

The guarantee expects all social landlords to increase rents by the consumer price index +1% for 10 years from 2015-16. Until now, councils assumed rents would rise by the retail price index +0.5% for three decades, as government policy papers had indicated.

Ian Green, a manager at Sector, said it was acting for several concerned councils.

“The worry for local authorities is that at the end of 10 years, the government will change it to CPI only,” he added. “If they do that, it will have a substantial impact.”

Ms Davies urged ministers not to undermine council housing investment so soon after local authorities had regained control of their budgets.

A spokeswoman for the DCLG described the new rent policy as a “fair deal for tenants and landlords”.

Explainer
The Treasury’s new social rent policy has two key elements. The first cuts short ‘rent convergence policy’ one year early. Introduced by the previous Labour administration, this had allowed councils to bring their rent levels into line with those of highercost housing associations. Without the extra year, most authorities will be left out of pocket.

The second change is a new ‘rent formula’ which states that social rents should increase by CPI +1% for 10 years from 2015-16. Both policies could save the exchequer £1bn between 2015-16 and 2017-18, a sum which depends on whether councils will toe the policy line.

“The main uncertainty [about the savings] is the behavioural response from local authority landlords,” Treasury documents say. The DCLG is therefore considering rent regulation.

The death of local government?

Localism, community right to challenge, independent schools, neighbourhood planning, community panels and of course, directly elected mayors. A common thread here, or to use the current jargon, the golden thread, is community. You could actually translates the term community into, ‘non-local government’. I say local government, because central government has made sure that none of the plans put forward for the reform of public services, have threatened their continued existence.

There’s been a concerted effort by the likes of Eric Pickles and George Osbourne, to make local government the villains of the piece, in taxpayers’ eyes, when it comes to the cost of providing public services. This ‘official’ campaign is under-pinned by the long held and media fuelled public perception of local government – It’s full of pen pushing bureaucrats; they all have a job for life so do as little as possible; what they do do, is always done at half speed; there’s too many managers, getting inflated levels of pay; when they retire, it’s too early and they all get a gold-plated pension. Oh! and while we’re at, those bloody councillors are a waste of space and get too much in expenses! They actually mean allowances, as expense are simply the refunding of what’s been paid out for things such as travel, whereas allowances are what councillors receive for being councillors.

Given this unremitting assault on local government from all sides, one has to wonder how long it will be before local government becomes pretty much extinct, which it’s difficult not to see as the ultimate ambition for Whitehall – why? Think about it – a large amount of tax revenue is currently diverted to local government through the grant process. Leaving most local services to be provided and therefore funded by the communities that use them, would give government a very large pot of money that wasn’t available before. Those services that are left for local government to provide, such as emptying the bins, will be funded from the perpetually frozen council tax, the partial retention of the business rates and possibly CIL. There will of course be a few other roles for local government to fulfil, because the government either can’t be bothered with it, or need to deflect blame away from themselves by putting somebody else in the firing line. Public health and the universal credit being the current ones.

Adult social care and the growing concerns surrounding the cost of provision suggests that this could still be the elephant in the room. However, given how duplicitous central government has been towards local government to date, I suspect they already have a plan that will leave local government further sidelined and weakened, whilst also being blamed for its failings.