Capital receipt set-aside rules to be scrapped so councils can invest in affordable homes

Rules demanding that up to three-quarters of capital receipt cash is set aside are to be scrapped for councils that agree to spend the proceeds on new homes, the Office of the Deputy Prime Minister has announced.

The department consulted on the changes in the summer. It believes they will provide incentives for councils to manage their assets well and dispose of any that are redundant.

The new rules will be limited in scope, however. Money from right-to-buy sales and voluntary transfers, which makes up the bulk of housing receipts, is exempt.

The government says up to £70m could be released for spending under its move, which is now out for further consultation on the mechanism by which it will be delivered. But it will not necessarily produce new money due to government rules on accounting for local authority credit. The Local Government Association is calling for further freedoms to spend on improving existing homes.

Adrian Waite, director of consultant AWICS, said the change is likely to favour councils in the South-east with high receipts and a high need for new-build homes. Those in other areas could lose out, he said.

Increasing subsidy will increase demand. Councils will end up chasing their tails

Adrian Waite, AWICS

He criticised the government's tactics in dealing with overheating in the South-east. "Increasing subsidy to that area will increase demand again. Councils will end up chasing their own tails," he warned.

The ODPM has also announced increases in councils' management and maintenance allowances: an extra 8.1% for the former and 5.7% for the latter. Housing minister Lord Rooker said he hoped councils would spend some of this on tackling antisocial behaviour.

But some councils, especially those without high-rise housing, could lose up to 2% of their subsidy because of the way need is calculated.