Clauses 48 and 49: Loans by Public
Works Loan Commissioners and Payment towards local authority indebtedness
30. Clause 49 would enable the Secretary of State
to make payments to local authorities that have transferred their
housing stock under a Large Scale Voluntary Transfer (LSVT) to
another registered social landlord, where the capital receipt
generated by the sale of the housing is insufficient to repay
the outstanding debt on the houses transferred to the new landlord,
(the gap between the amount received from the asset sale and the
outstanding debt is usually referred to as "overhanging debt").
31. A number of witnesses expressed concerns about
the proposals. For example, CIPFA said,
"Points about transparency, equity and fairness
can be made concerning the draft Bill's proposals for the Government
to pay off 'overhanging debt.'" CIPFA
continued, "From the perspective of the tenant who remains
with the local authority, part of their rental payment services
the historic housing debt rather than being applied to repairs,
maintenance and improvements. The 'playing field' is not level
and taxpayers' money is being used in a discriminatory fashion.
There is also a measure of 'perverse incentive' in the proposal
as it benefits authorities that have not maintained their housing
stock in the past to a standard where the market value exceeds
the historic debt."
32. The Committee recognises that there is a trade-off
between the one-off payment in respect of "overhanging debt"
and the subsidy a local authority would receive towards its debt
financing costs if it were to retain its housing stock, but a
number of witnesses suggested that the value of the "overhanging
debt" write off exceeds the value of the subsidy.[39]
Mr Raynsford offered to ask Lord Rooker, Minister of State for
Housing, Planning and Regeneration, to send a note to the Committee
on the balance of the benefit from overhanging debt write-off
and breakage costs as against subsidy.[40]
The Office of the Deputy Prime Minister did not provide any illustrative
calculations [41] to
either confirm or refute this point.[42]
The proposals contained in Clauses 48 and 49 on the re-payment
of 'overhanging' debt by central Government at the point of stock
transfer result in an uneven choice for tenants between remaining
with the local authority and choosing the stock transfer route.
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