Fury as sudden grant cut puts schemes at risk

The sector fired off an angry series of salvoes at the government this week as it emerged that dozens of new housing schemes formerly funded by councils were under threat.

The storm began brewing from the moment deputy prime minister John Prescott revealed in the Communities Plan that the local authority social housing grant, which allows councils to build 7000 houses a year, would stop from 1 April this year.

In its place there will be £380m of transitional funding: £175m in 2003/04; £140m in 2004/05; and just £65m in 2005/06 (see detailed table on page 8).

Letters from the National Housing Federation, the Local Government Association and the Chartered Institute of Housing argue that this money is simply not enough and valuable schemes to provide thousands of homes will be disrupted and possibly lost.

In a dramatic U-turn after meetings with councils and housing associations, government officials have hinted that they could be persuaded to ease some of this pain.

A letter on Monday from ODPM official John Apps called for councils to provide full details of all the schemes in the development pipeline in order to "ascertain the degree of commitment on schemes that would have come forward for LASHG funding".

A statement from the ODPM added: "That will enable us to draw up more precise criteria … to safeguard the most advanced and most committed schemes."

Richard McCarthy, chair of the National Housing Federation and chief executive of Peabody Trust, said: "They've pulled the shutters down really fast and as this situation gets worse we're going to get much more bloody-minded in our approach."

McCarthy added that a £6.6m Peabody scheme in Hackney, east London, would be hit by the sudden withdrawal of LASHG. He said: "It's a great scheme and one that fits all the government's ideas, but the rug has been pulled from under our feet."

A source close to the government said: "Without doing something, civil servants will be doing an Alex Ferguson by kicking into their own goal. The number of homes provided under LASHG is normally 7000 a year – it seems likely just now that this will not be maintained next year with the abolition of the grant."

David Gibson, assistant director (housing) at Bromley Council in London, said that his authority had planned to provide "in excess of £60m over the next three years of social housing grant".

A key scheme that would have to be "entirely reworked" was a £15m regeneration project in partnership with Broomleigh HA. It would have provided 300 homes – much for affordable housing for rent – however this would need to be changed to provide more housing for market sale to ensure the scheme could continue.

Gibson added: "There are inadequate transitional arrangements and the ODPM is distant from the understanding of what is in the pipeline for LASHG development.

"Implementation from 1 April 2004 would have been much fairer. The world we live in doesn't work over six weeks."