Deficit that drives rush to transfer

The Local Government Association's annual housing finance survey showed almost half of local authorities have raised their rents in excess of government guidelines.

The average rent charged by councils last year was £47.82, representing an average rise of £1.81, slightly higher than government recommendations of £1.71.

It found that 49 per cent had set increases above the guideline.

The LGA said this was mainly due to councils' desire to try and maintain high levels of service to tenants, despite inadequate financial support from government.

The survey found a £239 shortfall between the government's management and maintenance allowance of £1016 and the average national expenditure per dwelling of £1255.

For the seventh consecutive year, the survey found that 90 per cent of councils were paying more in rent rebate than they receive in housing revenue account subsidy. In 2000/1, the housing element of housing revenue account subsidy, for the seventh year will be negative - at minus £1,083m. "In effect, local authority housing will be generating a national overall surplus that will be used to finance rent rebates," the report confirmed.

The report says the fact that councils pay out more in housing benefit than they get in housing subsidy "remains a significant consideration when authorities are considering whether to or not to transfer their stock to the private sector - as once transferred such penalties no longer apply".

Chris Parr of the Daylight Robbery Campaign said these figures demonstrated the "absolute madness" of the system in the face of the housing crisis in the south: "The money should be used for repairs backlog and affordable homes."

John Austin-Locke, LGA housing policy officer said the figures were "a significant influence on councils decisions to transfer stock. Once they do that they are free of the penalties - of the annual worry of rent rebate subsidy."

John Perry, policy director at the Chartered Institute of Housing said: "This is the same picture as the last few years, Local government housing finance is as tight as ever." But he pointed out: "What will change in April is that authorities will get big revenue support when the major repairs allowance comes onstream. This affords much more flexibility in the HRA by granting local authorities an average £500 per house."

Paul Schofield, policy research officer for the Tenants Participation Advisory Service said: "We're three years into a change of government, and tenants and local authorities are still being told "transfer and get more investment or stay with the council and maybe get jam tomorrow".

"Unless something comes out of the public spending review in November, there may be a watershed where transfer is the only option".