Debt cancellation vital for urban renaissance

Billions of pounds of council debt will be written off in a move that could encourage registered social landlords' expansion, if government accepts the recommendations of the Urban Task Force.

Its landmark report, Towards an urban renaissance, launched by deputy prime minister John Prescott and task force chair Lord Rogers this week, envisages a 15-year programme to meet targets for brownfield housing, deal with household growth and reverse decades of 'urban flight' to the suburbs and rural areas.

Its 105 recommendations include a national urban design framework, new planning rules, better public transport, tax breaks for 'urban pioneers', and harmonisation of VAT on refurbishment and construction.

The report argues that debt cancellation, stock transfers and a massive injection of private finance are essential for a rebirth of England's deprived urban areas.

However councils warned the proposal would never get past chancellor Gordon Brown. The report says that transfer offers "one of the few options" for improving the 40 per cent of inner urban housing stock which is owned by councils and RSLs.

But it warns that overhanging debt is acting as a major brake on the process. It says: "We will need to write off some or all of the housing debt which local housing authorities are still carrying from 20 years ago, or more specifically to enable more transfers to dedicated housing management organisations."

It says that cancelling the estimating £20 billion overhanging debt could allow RSLs to raise £40 billion in private finance for stock improvement - "a sum way beyond the reach of the public purse in the short term".

Transfers of council stock to housing associations and local housing companies have already accelerated in recent years. Beginning in 1988, it has risen quickly over the last few years to around 80,000 last year and some 140,000 in 1999/2000.

National Housing Federation chief executive Jim Coulter said the recommendation on overhanging debt was "very significant".

He said "It will cut costs and kickstart the process because it would allow transfer in some urban areas which would otherwise not happen."

But the Local Government Association described debt cancellation as a "fine idea but the Treasury would never wear it".

Housing policy officer Gwyneth Taylor said: "It is a bit optimistic. £20 billion is a lot of money and I'd like to see the Treasury roll over and accept it. Housing finance is more about future forms of finance vehicle rather than past debt."

The report will feed into the forthcoming urban white paper expected in the autumn.