New borrowing rules could give Scottish councils £1bn, says expert

The anomaly has arisen because there are no subsidy controls on the majority of Scottish council rents and no link between subsidy and housing benefit, unlike in England and Wales.

In this year's UK Housing Review – previously called the Housing Finance Review – published next week, University of York professor Steve Wilcox pointed out that Scottish councils raise more than £100m a year in rents.

"If Scottish councils were permitted to operate under the 'prudential rules' regime, then the substantial revenue sums they currently apply to supplement their capital programmes could, instead, be applied to support a massive short-term investment," he said. Wilcox estimated this could be as much as £1bn.

But he warned that the size of this cash pot could be an incentive to raise rents as an alternative to selling their stock.

The Scottish Executive has put a lot of store in stock transfer, and the Treasury has agreed to cover overhanging debt in Scottish and Welsh transfers, says Wilcox, so "[the executive] is unlikely to agree a prudential borrowing regime … unless it is insulated, at least to some degree, against costs falling on its budgets as a result of council decisions on rent levels".

Also in the review, Council of Mortgage Lenders' deputy director general Peter Williams bemoaned the lack of housing investment in Wales since devolution. "The [Welsh] Assembly does need to consider if it is satisfied with its achievements in the first term of office and what lessons might be learned," he said.

To get a copy of the UK Housing Review 2002-2003, call 024 7685 1752.