Under-funding of council housing – Time to “reopen the (council housing debt) settlement”

At a recent meeting of Swindon Council’s Housing Management Cabinet Member Advisory Group¹ an Asset Management Strategy was discussed. This document brings together planning of the work that needs to be carried out to maintain the housing stock in good condition over the long term. One of the factors which it has to take account of is that 42% of the stock is “non-traditional”, i.e. pre-fabricated. It’s upkeep is more expensive than traditional building. A Stock Condition Survey carried out by the company Penningtons proposed that in order to prolong the life of the “non-traditional” properties, certain structural work would be necessary. They said this would require spending £7 million a year for 10 years. However, the council is currently spending only £2.5 million a year on this work. If spending remains at that level then it would take 28 years to do the work rather than 10!  Read on below or download a PDF here octobercmag

As we have explained previously the shortage of sufficient funding² for the Housing Revenue Account (HRA), which is separate from the council’s other spending, is the result two things:

• The imposition of £138.6 million extra ‘debt’ in 2012 when a new council housing financial system, ‘self-financing’, was introduced. The HRA has to pay off this money plus interest charges. This means £9 million of rental income per year goes on servicing this ‘debt’ rather than being spent on maintaining the housing and renewing key components (bathrooms, kitchens, roofs etc) as they wear out.

• Government policies since 2012 have cut income to the degree that over the rest of the 30 year business plan Swindon Council will take in more than £300 less rent than it planned for in 2012.

This is the shortage which underlies the low level of spending on the “non-traditional” housing.

2012 “debt settlement”

When the new council housing finance system was implemented in 2012 there was a ‘debt settlement’. What was said to be the national council housing debt was redistributed amongst local authorities. The amount of ‘debt’ each council was given was based on an estimate of rent and other income over 30 years. Yet the income which was planned for has failed to materialise because government policies, such as a 4 year 1% annual rent cut, have meant council HRAs taking in much less income than originally expected.

Under the 2011 Localism Act the government gave itself the power to “reopen the settlement”. A government document explained that

“This provision is necessary to protect both the government and local authorities from

being locked into a deal that, because of changes to policy affecting either a landlord’s

income or costs, no longer reflects a fair valuation and could have a material impact on

viability. It could be a major change in national rental policy…”

A “major change in national rental policy” is exactly what happened, twice. Councils are

“locked into a deal” which has a material impact on the viability of their HRAs.

Swindon Tenants Campaign Group has been raising this issue for some time. Swindon Council’s Housing Advisory Forum has previously passed a resolution calling on the council to press the government to “reopen the settlement”. The shortage of spending on the “non-traditional” stock highlights the relevance of what we have been saying.

The recent meeting of the Housing Management Cabinet Member Advisory Group passed this resolution:

“The Housing Management CMAG welcomes the development of an Asset Management Strategy. However, we recognise that the HRA has insufficient resources for the maintenance and renewal of existing stock over the course of our business plan. The shortage of funding is in large part the result of government policies since 2012 which have depleted our income. We therefore ask the Cabinet Member to press the government to reopen the debt settlement and cut our ‘debt’ in line with the income lost as a result of policy changes since 2012. Without sufficient funding we will not be able to carry out a strategy based on the Stock Condition Survey.”

The Cabinet Member, Cathy Martin, has arranged a meeting with herself and MP Rob Buckland, where we will discuss this issue and press the council and the MP to call on the government to “reopen the settlement” and cut the debt that was imposed on Swindon.

Existing council housing is under-funded because of the cost of servicing a ‘debt’ which was the product of ‘creative accountancy’ by the Treasury. As the House of Commons Council Housing Group showed in a report in 2009 tenants have paid more in rent than the supposed cost of the historic debt associated with building programmes.

Cut the ‘debt’

The amount of income that is being lost over the 30 years of the business plan is more than the debt our HRA has been saddled with. If the government cut the debt in line with this loss, resulting from their policies since 2012, the Swindon’s HRA would have more than £9 million a year extra to spend on the upkeep of our council homes.

In the past we have struggled to get the ruling administration at Swindon Council and the MPs to challenge government policies which have negative consequences for people in the town. Recently, however, the council has written to the government Minister in relation to the impact of existing planning policy on the town. The MPs have sought to increase government funding for education since they thought the formula was unfair. If the funding for council housing is unfair, which it certainly is, then why can’t the council and the MPs raise this issue with the government?

The government has the power to reopen the settlement and to adjust the debt in line with significant changes in a landlord’s income or costs. So why not demand that the government use this power and cut the ‘debt’ accordingly?

We will report back on what happens in the meeting with Cathy Martyn and Rob Buckland.

Martin Wicks

Secretary, Swindon Tenants Campaign Group

20^th October 2017