Blog Post

One cheer and one HuRrAh

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

In trying to look beyond this government’s irksome habit of claiming credit for things agreed before the Election, at least it can be said that the snail’s pace move towards the abolition of the housing revenue account national subsidy system continues in vaguely the right direction. 

Having announced already that he planned to stick with most of John Healey’s proposals, announced it again as part of the November consultation on the reform of social housing, and announced it yet again as part of the Localism Bill package, Grant Shapps has now announced a ‘route map’  towards reform – in advance of a more detailed announcement next month!  The route map makes it clear that more detail will emerge over the next year before implementation in 2012, no doubt offering Mr Shapps further opportunities to announce his great, but inherited, reform.  Who said spin was dead?

Brought up on a council estate in Kenton, Newcastle, I have always had an emotional belief in council housing, and have often been outraged at the stigma attached to the tenure, the appalling media misrepresentations, and the snobbery.  Although what Thatcher did to council housing was unforgiveable, I was hugely disappointed that it turned out to be not very New Labour either.  But the rationale for council housing is not just emotive.  Based on a system of rent pooling, so that surpluses from older homes cross-subsidise the cost of new ones, it was also a robust financial model.  It could have provided hundreds of thousands if not millions of extra homes if it had been managed properly over the past 30 years.   

The Tories’ failure to invest in managing and maintaining the council stock left Labour with a huge problem in 1997, including a backlog of disrepair estimated at around £19billion and an incoherent rent policy.  Labour made some well meaning attempts at reform, such as the introduction of rent restructuring, the Major Repairs Allowance and the Decent Homes Programme, but funding for the latter carried the clear political price tag that direct management of the stock by councils was unacceptable to the government. 

As some councils in the national HRA subsidy system had large historic debts and others had none, the system was unbalanced and rent pooling became unmanageable.  It also became increasingly unpopular with tenants and councils in those areas where a third or even a half of local rents were taken for distribution elsewhere.  Despite producing growing surpluses nationally, all of the participants were unhappy with the outcome, even those that gained from redistribution.  As an annual system, there was no certainty about income and it was impossible for councils to plan long term and improve efficiency.  Tenants simply could not engage with the key decisions that affected their homes and communities because they were only understood by a tiny number of civil servants and professionals.  In its latter years, the Labour government became less hostile to the idea that council housing should have a long term future, and understood that a more local system suited the times.  It embarked on the hugely complex exercise of unravelling the system.

The Localism Bill contains powers to implement the local system proposed by Labour.  In future, councils will keep their rental income and use it locally to manage and maintain their own homes and service their debt.  To get to the point where all councils have sufficient income to meet these costs, there will be a one-off payment between central government and each council, which will reallocate existing housing debt between councils in a final settlement based on 30 year business plans for each landlord.  This is possible because the national system is in surplus – ie tenants are paying more in rent than council housing costs to run.

Communities and Local Government department’s task is complicated: they have to incorporate the implications of the new government’s shifting policies, for example on rents, as well as making important assumptions about inflation and the ‘discount rate’ (currently assumed to be 6.5%) used to determine the ‘net present value’ of each council’s housing business. 

I have 2 main concerns.  First, John Healey planned to allow councils to keep their right to buy capital receipts, whereas the Tories will retain the current system that returns 75% of net receipts to the Treasury.  There will also be a cap on councils’ overall housing borrowing.  Hope that HRA reform would trigger a resurgence in council housebuilding has been dashed.  The overall receipt to the Treasury from all the various calculations is currently projected to be around £6.5b, but tenants may come to view this as being paid for out of a large rent increase next year of over 7%.

Secondly, Labour would have localised the HRA within the clear framework of the regulatory regime.  There would have been an external check, through the Tenant Services Authority, and a place for tenants to go if, for example, their council set up backdoor arrangements that took funds out of the HRA to benefit the general fund.  It is still not clear how regulation will operate without the TSA, and this will make tenants in some areas nervous about what their landlords will get up to.   

At least we can look forward to further announcements.