Opinion

The housing finance system is a means to an end. This is clearly stated in The Way Forward for Housing Capital Finance, a recent consultation paper from the Office of the Deputy Prime Minister.

The paper says that changes to the system should help it enable councils to deliver high-quality housing and services.

It also lists specific objectives for the changes. They include:

• fairness in the allocation of resources between authorities
  
• stronger incentives to more active management of the nation's council housing stock
  
• encouraging better management of council housing
  
• simplifying the current system since few housing professionals, let alone councillors and tenants, understand how the housing finance system works
  
• greater transparency, closely linked to simplification, so that ideally all concerned should understand how the system allocates resources and why, and so that decision-makers better understand the consequences of their actions.

These are all worthwhile objectives. It is the current revenue system, rather than capital, that is causing so many of local authorities' problems. Without a firm and sustainable revenue base, the ongoing daily service provision is being jeopardised. Each year the amount of housing element subsidy is being reduced in real terms because the guideline rent income credited into the calculation significantly exceeds the annual rise in management and maintenance allowances.

Also, for many authorities the amount of capital receipt set aside is more than the new admissible borrowing, reducing the amount of debt outstanding. Thus, annual debt charges are declining with all the benefit going to the ODPM.

The net result is that the annual housing element subsidy entitlement is falling by far more than inflation and often by more than the actual annual rent increase, leaving the housing revenue account with little or no extra resources to cover inflation, never mind actual growth.

The new rent restructuring arrangements prevent an authority from increasing its income above target rent levels. And the council has also probably exhausted its ability to make "efficiency savings" because, apart from the introduction of the major repairs allowance (which is anyway offset by reduced capital allocations), this problem has been around for years.

A "blue skies" approach to reforming the housing capital system is a welcome opportunity to make provision of the housing service more effective. But it will not do so if all it achieves is redistribution of resources.

And it is worrying that one of the prime objectives of reform is not even mentioned in the consultation paper: getting extra resources for whatever simplified system ultimately comes about.

How councils are attempting to balance the books