Select Committee on Transport, Local Government and the Regions Fifteenth Report

Part 7: Housing Finance

44. The Act introduces a number of measures relating to the housing revenue account. These must be seen alongside the proposals on capital, earlier in the Bill—in Part 1 (the prudential capital regime and pooling of assets) and Part 3 (Clauses 48 49 payment of 'overhanging debt').

Clause 96: Housing Revenue Account subsidy: payment and calculation

45. Clause 96 amends Sections 79 and 80 of the Local Government and Housing Act 1989 ("the 1989 Act"). The Explanatory Notes state that this Clause amends Section 80 of the 1989 Act so that Housing Revenue Account subsidy may be calculated in a manner determined by the Secretary of State rather than in accordance with formulae. We heard from Wolverhampton City Council:

"Part 7 of the draft Bill would allow the Secretary of State to adopt a highly subjective regime to determine each local authority's annual subsidy for council housing. It mixes the present formula approach with subjective assessments of Housing Revenue Account business plans and authorities' performances and 'assumptions as to any other matter.' Clearly this would give extremely wide powers to the Secretary of State with which to determine subsidy and the Government has determined the general fund services that plan-based grant decisions are not appropriate, but for housing finance apparently a different approach is being taken."[56]

The Government should adopt a transparent approach to housing finance, in particular decisions should not be based on an assessment of business plans in the Housing Revenue Account when such an approach has been rejected for local government finance more widely.

Clause 97: Housing Revenue Account subsidy: negative amounts

46. The Committee welcomes the Government's proposals to separate rent rebate subsidy from Housing Revenue Account (HRA) subsidy.[57] However, a number of witnesses expressed concerns about the effect of Clause 97, which would require local authorities to pay over negative subsidy to the Secretary of State. For example, Wolverhampton City Council told us that, despite being one of the most deprived areas in the country, the Council pays about £10m of so-called "surplus subsidy" into its General Fund under the existing Housing Subsidy system (the equivalent of £1 per tenant per day). The council is concerned that it may have to make similar payments to the Secretary of State under the new arrangements.[58] The Minister's interpretation of Wolverhampton's position is different from the council's. In the Minister's view, the system only requires the council to set aside its notional surplus on the Housing Revenue Account for major repairs. Nonetheless CIPFA said in its written evidence to the Committee that,

"The proposal to redistribute excess rental income between local authorities raises questions of equity." It continued, "Arguably, equity would dictate that rents should be reduced to match expenditure and that redistribution and equity should be achieved centrally through housing revenue account subsidy. The assumption behind these proposals seems to be that housing is a national service and that money from one area can be readily moved around the country." [59]

The Chartered Institute of Housing also expressed concern about the proposals on the grounds that housing authorities only have freedom to generate extra resources at the margin - and most of that remaining flexibility will be "squeezed out" by the proposals in the draft Bill.[60]

47. The Committee is concerned that the proposals in Clause 97 of the Bill mean that the "nearly poor" are being asked to subsidise the rents for other "nearly poor" people. Accordingly, the Committee believes that the Government should reconsider their proposals to introduce negative Housing Revenue Account subsidy arrangements.

56   Q363 Back

57   Rent rebate subsidy refers to the contribution made by the Exchequer towards the cost of rent rebates given to council tenants on low incomes. Housing Revenue Account subsidy refers to payments made by the Exchequer to some, but not all, housing authorities towards the capital financing and other costs in respect of their housing stock. Back

58   Qq364-366 Back

59   LGB29 Back

60   LGB03 Back

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