Right to buy to be reformed as unscrupulous firms exposed

The government has pledged to tackle problems with the right to buy, as it emerged that more than 20 firms in London are exploiting loopholes in the policy.

At the Labour Party conference in Blackpool, deputy prime minister John Prescott denied he wanted to end the right to buy, but admitted it undermines "social housing in designated housing crisis areas". He said he "will act" where the policy is being abused.

Local government minister Nick Raynsford told Housing Today that abuses to the system had to be stopped. Any reform would need changes in regulations, but only via secondary legislation, he said. The system could be reformed by suspending the right to buy, or by modifying the discounts offered.

Prescott's statements on the right to buy were strongly welcomed by housing delegates to the conference as the clearest sign yet that reform of the right to buy will not just centre on abuses.

Shelter external affairs director Ben Jackson said: "Prescott's statement clearly goes beyond curbing abuses to the system and recognises the desperate need to change the policy in areas of severe housing demand."

Right-to-buy applications were likely to surge as a result of Prescott's comments, he added.

Prescott's speech came as the London Housing Unit finalised research into council house sales that will be submitted to the Office of the Deputy Prime Minister's right-to-buy inquiry. The unit found up to 20 companies exploiting a loophole that allows them to cash in on right-to-buy discounts.

Tenants can expect a discount of up to £38,000 on the open market value if they have lived in the property for two years, which they have to repay if they sell the property within three years. The unit found private companies offering tenants cash incentives of up to £25,000 to vacate the property after the sale. They also enter into a contract with the tenant so the company becomes owner a little more than three years after the sale, avoiding the requirement to return the discount. In London, 19 boroughs reported 320 cases of this type between them. The capital loses more than 11,000 homes a year through right to buy.

Camden council wants to set up a national consortium to lobby on housing issues, including the right to buy. Neil Litherland, director of housing at the north London council, said local authorities and agencies from across England would be invited to team up to push a national picture of constraints on housing.