Housing associations could be forced to offer councils a refund if they make start making big surpluses on stock transfers, according to government sources.
The public sector could also demand a "clawback" from businesses involved in social housing private finance initiative schemes if they too end up with bigger returns than expected.

The revelations have serious implications for two of housing minister Nick Raynsford's three methods of boosting investment in affordable housing and tackling the repairs backlog.

They follow a precedent set last week by the National Audit Office, the public spending watchdog, which investigated the private finance initiative contract to build Altcourse prison in Liverpool.

It emerged that Group 4 security and Tarmac construction managed to increase their expected profits by £17.5m by renegotiating the loans funding the project. Lenders felt the scheme had become less of a risky investment because it had opened early and was running more efficiently than anticipated.

The Prison Service was subsequently able to claw back £1m in compensation, but the National Audit Office warned that "further refinancings are likely to occur" in other PFI contracts - and the public sector might not be so lucky in future.

The NAO advised the public sector to seek compensation under similar circumstances. It suggested consideration of refinancing issues when planning PFI contracts.

The issue is considered by government experts in local authority PFI as "a genuine problem". The Treasury is understood to be looking into the matter and is expected to suggest a "clawback" agreement for PFI later this year.

However, government insiders are also concerned about similar wrangles emerging over housing stock transfers.

Transfers are financed entirely by bank and building society loans and, if a new landlord performs better than expected and the risk is reduced, lenders may be willing to refinance the deal at a better loan rate.

"The same problem has been experienced in large measures in the housing transfer market," a source said. "LSVTs have been refinanced and it's exactly the same situation as the NAO identified. The cost of finance for a new transaction is very different to the cost of finance for ongoing operations. This is something that the public sector has got to examine."

Lenders were alarmed at the speculations. One said: "The principle of retrospectivity would very much be a cause for concern."

Source

Housing Today