Public & Private

The government's desire to open up public policy to wider debate through the "blue skies" agenda has moved into social housing with a flurry of activity. In recent months there has been an escalating debate on issues such as the right to buy, development, regulation and governance.

On 2 August a further consultation paper was issued on the way forward for housing capital finance. While the government's initiative to open up the wide blue yonder should be commended, it is wise to beware the clouds that may be on the horizon. The government's two key targets at the moment, for decent homes and affordable housing, could be under threat if the debate becomes too prolonged. Uncertainty will cause difficulties. For example, we have already heard that one or two authorities are waiting to hear how the capital finance debate develops before committing to a ballot on stock transfer.

One suspects that the delay in the announcement of the next three years' housing budget after the comprehensive spending review is inextricably linked to the outcome of the current debates. The discussion document on capital finance recognises that the current system is complex, but also acknowledges that simplifying it will not necessarily be that easy if the regime is also to be fair.

The starting point has got to be the capacity of the different sectors to deliver the government's targets. While local authority housing may have an open market value of over £100bn, its value as social housing is only as good as the revenue income stream that can support it, which is considerably less. The current "surplus" as used in the Housing Revenue Account subsidy calculation is around £1.5bn (about £535 a home) but this has to go towards paying debt charges on the existing HRA debt of around £18bn.

For some authorities the surplus is a lot higher than this – over £1000 a home, and if their existing debt is quite low they could have significant extra capacity to borrow – as suggested in the consultation paper. However the government currently uses that money to support authorities with low surpluses and/or high debt. Without that cross-subsidy the government has to meet the costs itself.

The government’s two key targets could be under threat if the debate becomes too prolonged

This is one of the key issues at the heart of the funding debate. Will the government continue with the cross subsidy or meet these costs from the national housing budget?

Another related issue is what should be done with right-to-buy receipts. At present 75% is set aside to repay debt, which then reduces HRA debt charges and HRA subsidy by a similar amount. The consultation paper has suggested that the 75% rule will be continued and extended to debt-free authorities while freeing up authorities to recycle non-RTB receipts. What this may mean is a change in the accounting arrangements – which could require authorities to pay the cash back to central government before it is reallocated – perhaps through capital grants?

The key question then becomes who receives the capital grants and how. Of course if the cash is redistributed as grants then it will not be going towards debt repayments. This in turn will limit the sector's ability to borrow.

In tandem with the above, the government is proposing to abolish local authority social housing grant. In its place we may yet see authorities given greater control over the funds currently allocated through the Housing Corporation's approved development programme – but a lot will depend on the role of regional government in the future. In the meantime this could have a serious impact on some councils' ability to deliver more affordable homes.