New rules allowing some councils to borrow would still not produce a level playing field with housing associations for delivering decent homes, experts warned this week
A local government white paper published this week confirmed that, within Labour’s new prudential borrowing regime, councils with ‘high performing’ arm’s-length management organisations will be able to use the proceeds of rent increases to fund borrowing.

Instead of a £5,000 per house funding limit, councils will get permission to keep enough rent to finance borrowing to meet the government’s decent homes targets, set for 2010. Extra money will come from rent increased through restructuring, and borrowing will have to be within limits to be set in 2003’s spending review, it adds.

“High-performing still means councils with a three-star or two-star rating,” local government minister Nick Raynsford explained.

The move ends what one source called the “paralysis” in council housing investment options. Speculation abounded when DTLR minister Stephen Byers and housing minister Lord Falconer disagreed over councils being allowed to borrow against rents (Housing Today, 4 October 2001).

Colin Meech, public service union Unison’s housing spokesman, said it would be looking more closely at the details before commenting.

But Local Government Association acting head of housing Gwyneth Taylor called them catch-22 proposals.

“The provision is only for a small number of high-performing authorities. But we need the flexibility to become high-performing,” she said.

Only eight councils in this year and the next would benefit, she said.

John Perry, policy director of the Chartered Institute of Housing, said the new rules made the arm’s-length option “much more viable and attractive – with the important proviso that councils still have to meet the Best Value tests”.

Councils headed for transfer, such as Birmingham, which had tarried due to uncertainty over the borrowing rules would now be able to press ahead.

Other key housing finance moves include scrapping the ‘set aside’ rules on using right-to-buy receipts against debt, the establishment of a pooling system and a commitment to removing rent rebates.

Strong local leadership – quality public services: the parliamentary hotline 0845 7 023474.