This is a personal view. If you are a Swindon Council tenant please let us know what you think.
Swindon Borough Council is holding its annual rent consultation on what our Council home rents will be from this April. It has produced 4 possible options:
1) An increase based on the Retail Price Index (RPI) plus 0.5% + £2 a week
2) RPI plus 0.5%
3) RPI (2.6%)
4) A rent freeze
Option 1 is based on ‘rent convergence’ or ‘rent equalisation’ which was introduced by the New Labour government in 2002. It was said to be a means of ending the ‘arbitrary’ differences between Council housing and Housing Association rents and overcoming ‘confusion’. This was nonsense since we knew why Council and HA rents were different. HA’s borrowed their money from commercial sources at higher interest rates than are available to Councils borrowing from the government’s Public Works Loan Board. Hence historically HA rents were around 20% higher than Council rents. ‘Rent equalisation’ meant driving Council rents up to the level of HA rents. For tenants this has meant rents being driven up above the level of inflation. The proposal had more to do with the desire of the government to transfer all Council housing over to Housing Associations than ‘ending confusion’.
To reach ‘equalisation’ of rents the government had a rent formula which Councils had to follow: – RPI + 0.5% + plus a maximum of £2 a week. The last of these, over and above RPI + 0.5% was discretionary. The Council could add an additional weekly increase of up to £2 a week, but it did not have to do so.
When the government introduced the new Housing Finance system – ‘self financing’ – the amount of debt it gave Swindon was based on its assessment of what Swindon needed to increase its rents by in order for ‘rent equalisation’ to be completed. However, now ‘rent equalisation’ is dead and buried so we can ignore it. To push up rents on the basis of this formula would make them unaffordable. To increase rent by this amount in 2013/14, especially after the very steep increase last year (an average of 7.89%) would be a big blow to tenants faced with the various benefit ‘reforms’ which are being introduced this April.
We have to bear in mind that the amount of money available for work on our homes will depend on rent income. However, the Council is free to determine what increase if any we have. If rents are driven up too far it will not only make them unaffordable for more people, especially low paid workers, but it will also will be counter-productive. The higher they go then the higher will be the housing benefit (HB) bill paid by the government. In large part ‘rent equalisation’ has been responsible for driving up HB expenditure.
At the local level if rents are driven up too far there will be a big increase in rent arrears. The Council is already expecting an increase in arrears as a result of the ‘bedroom tax’ and the Council Tax benefit cut.
From the point of view of the interests of tenants, this year especially, the rent increase should be kept to a minimum or frozen. From April this year around 1,200 tenants will be facing the ‘bedroom tax’. They will have to pay 14% or 25% of their rent if they have one or two ‘spare’ bedrooms. At the same time they and other tenants will face a Council Tax benefit cut which will mean they have to pay a minimum of 20% of their Council Tax, which they currently don’t have to pay.
For people on Job Seekers Allowance, who are supposed to live on £71 a week they may have to pay up to £25 a week out of this paltry sum. Even if they want to move to a smaller property there may not necessarily be one available and they may not be able to afford the expense of moving, getting new furniture for a smaller place, etc.
The general economic situation is difficult for tenants, as with other sections of the population, facing big increases in food and heating bills whilst the value of wages has declined. The Council has said it wants to freeze the Council Tax because it recognises the difficult situation that many of its payers face. Will it not adopt the same attitude towards its tenants?
In these circumstances I believe that the Council should freeze rents this year, as a one off, taking account of the situation their tenants face. The consequence of doing that for more than one year would be to significantly cut the amount of money available for the upkeep of our homes. However, as a once-off, the loss of rental income, would only be £1,050,000 (the difference between a freeze and an RPI increase of 2.6%). It would be manageable, not having any significant impact on repairs and maintenance and capital spending.
Another key factor to take account of, in determining the rent level for next year is how much of the loans we borrowed from the government under ‘self-financing’ should be paid back. The Council has to pay around £4.5 million interest each year on those loans. On top of that they are proposing to ‘pay off’ £8 million of the debt for next year and the year after. This would have a big impact on the work that the Council could do to maintain and refurbish our homes. For instance, if there were a rent freeze next year the HRA would have an estimated surplus of £19.9 million. If £8 million debt was ‘paid off’ it would come out of this surplus. So this would mean that only 150 bathrooms and 150 kitchens would be renewed, which is an unacceptably low amount.*
In fact for reasons that I will explain in a separate article no debt needs to be paid off in the early years of the Council’s Housing business plan. The money they borrowed from the government (from its Public Works Loan Board) was not borrowed in one lump sum but in 22 different loans of varying sizes, each of which has to be paid off at various times over 40 years. But the first loan does not have to be paid off until 2023.
If we have a rent freeze this year and no debt is paid off then the loss of £1 million in rent income would have even less impact.
So in conclusion I think we should press the Council for a rent freeze for 2013/14, not only because of the difficult economic climate but because of the introduction of benefit ‘reforms’ in April which will add significantly to the pressure on many tenants. The Council would have to answer the question as to why it was proposing freezing council tax for the second year running whilst at the same time proposing an RPI rent increase for tenants.
* Owing to the low interest rate which the Council got for the loans it took out to repay the £138.6 million, there is some extra money available £400,000 of which the Council is proposing to spend on kitchens, but this money is only available this year.