Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Unison (LGB 08)


  1.  UNISON welcomes the publication of legislation that gives effect to the commitment to introduce the prudential framework

  2.  UNISON believes that the Government should end the discrimination faced by council tenants when choosing their investment option and secure meaningful choice for council tenants. A level playing field of investment options should be created between either:

    —  Direct management by the local authority.

    —  the establishment of an ALMO to manage properties on behalf of the local authority.

    —  Stock Transfer.

  3.  UNISON believes that the draft legislation should be amended to require the Secretary of State to secure equal levels of investment regardless of the management option chosen by tenants. In this evidence UNISON illustrates how such an approach could be developed.

  4.  UNISON does not support the proposal to give the Secretary of State the power to use public funds to meet the costs of penalties associated with the early repayment of debt and believes that this is an inappropriate use of public funds.

  5.  UNISON welcomes the publication of draft legislation that will remove rent rebates and housing (rent rebate) subsidy from the Housing Revenue Account. The proposals contained in the draft bill mean that rent rebates should be removed from the HRA by 1 April 2004, implementing proposals first published by the Government on 15 December 1998.


  6.  UNISON is the largest trade union in the UK, representing 1.3 million workers, 850,000 of which are in local government.


  7.  UNISON welcomes the arrangements set out in the draft Local Government Bill setting out the "power to borrow" for purposes that are relevant to their functions.

  8.  The draft legislation provides that local authorities will be under a duty to determine an "affordable borrowing limit" and to keep it under review. Local authorities will be required to "have regard" to guidance issued by the Secretary of State and specified codes of practice, particularly the CIPFA Prudential Code.

  9.  While each authority will set its own "prudential" limit, breach of that limit is expressly prohibited by clause 2(1)(a) of the bill.

  10.  In determining the "affordable borrowing limit" a local authority will need to consider its ability to meet the debt charges that arise from borrowing. A local authorities' ability to meet these debt charges will depend on the future revenue streams available to that authority and the forecasts for future capital receipts from asset sales.

  11.  The White Paper "Strong Local Leadership: Quality Public Services" envisaged a separate prudential limit for the Housing Revenue Account. The draft legislation does not preclude this, but it does not specifically provide for a separate "affordable borrowing limit" for the Housing Revenue Account. The Committee may wish to examine whether this is still the Government's intention.

  12.  In addition to the Local Government White Paper, the Bill needs to be seen in the context of the development of housing policy since the Government was elected in 1997. In particular the 1998 Comprehensive Spending Review (CSR98), the Spending Review 2000 (SR2000) and the Housing Green Paper "Quality and Choice: A Decent home for All".

  13.  The Government inherited a history of chronic under-investment in the public housing stock and a fragmented system of resource allocation. The Comprehensive Spending Review (July 1998) estimated that in England the "repairs" backlog in the public housing sector amounted to £10 billion. The Housing Green Paper (Quality and Choice: A Decent Home for all, April 2000) went further and estimated the backlog of repairs and improvements at £19 billion. It argued for a "step change" in investment in order to address the backlog within 10 years.

  14.  Additional resources were slow to arrive. The Comprehensive Spending Review (July 1998) increased the housing capital resources made available to local authorities to £1.118 billion in 1999-2000 to £1.811 billion in 2000-01 and £2.305 billion in 2001-02. The Government made it clear that it "expected" the bulk of these resources to be spent in addressing the backlog in repairs to the existing local authority stock.

  15.  In the Spending Review 2000 housing capital resources made available to local authorities, (instead of being increased), were dramatically reduced from a planned £2.305 billion in 2001-02 (CSR98) to £0.705 billion.They will only rise to 0.793 billion in 2002-03 and £0.842 billion in 2003-04.

  16.  It is worth comparing these with the housing basic credit approvals made available to local authorities by the previous Government. These were £1.445 billion (1990-91), £1.420 billion (1991-92), £1.436 billion (1992-93) and £1.395 billion (1993-94). (Source: DoE, 8 November 1990)

  17.  This £1.6 million reduction in capital resources financed the Major Repairs Allowance (MRA). The MRA was not provided to address the backlog of repairs and improvements as, according to DTLR, the MRA "represents the cost of maintaining the current condition of the stock".

  18.  The introduction of the MRA also had the effect of significantly reducing the extent to which HRA surpluses were being used by the government to offset the costs (to the government) of rent rebates (housing benefit for council tenants). This issue is addressed in more detail in paragraphs 39-41.

  19.  The Housing Green Paper and the Spending Review 2000 also provided £460 million of additional resources over a three year period to 2003-04. These resources would only be available where a local authority established an arms length housing management organisation—now known as ALMOs. Successful councils can get £5,000 per property provided these organisations, once established, secured a 2* or 3* rating from the Housing Inspectorate.

  20.  The introduction of the prudential framework provides the Government with an opportunity to enable local authorities to invest in the existing housing stock without stock transfer or establishing an ALMO to do so.

  21.  However, it will be necessary to ensure that local authorities have sufficient future revenue streams to be able to do so. This requires either that a specific HRA subsidy stream is provided or that the assumptions built into the subsidy formula about rent levels and management and maintenance allowances produce a revenue surplus that can be utilised to meet new future debt charges.

  22.  Currently under the HRA subsidy system, the government sets guideline rents for each local authority. In calculating HRA subsidy the government assumes that the local authority has set its rent at the guideline figure. These guideline figures are gradually (over a period of 10 years) being brought into line through the rent convergence framework.

  23.  Local authorities that set rent levels below the guideline determined by the government therefore have to make savings in other elements of the HRA budget to meet this loss of assumed income.

  24.  One mechanism that the government could adopt would be to introduce a guideline rent for HRA subsidy purposes at a given level below the guideline rent. This would have the effect of releasing a rental stream that could be taken into account in calculating the affordable borrowing limit.

  25.  The table below illustrates the income that, nationally, could be generated and the borrowing power that it could generate for different gaps between guideline rents and HRA subsidy guideline rents. The figures are based on 2.8 million council dwellings and an assumption that the revenue stream represents 25 per cent of the amount that can be borrowed.

Gap between Guideline rent and HRA subsidy guideline Annual value/propertyRevenue stream Capital investment that
could be financed
£/week£ £m£m
152145.60 582.40
2104291.20 1164.80
3156436.80 1747.20
4208582.40 2329.60
5260728.00 2912.00
6312873.60 3494.40
73641019.20 4076.80
84161164.80 4659.20
94681310.40 5241.60
105201456.00 5824.00

  26.  UNISON believes that the Government should adopt such an approach as a means of providing council tenants with a meaningful choice investment between:

    —  Direct local authority management

    —  Local authority establishes an ALMO to mange properties

    —  Stock Transfer


  27.  The draft Bill amends S79 and S80 of the 1989 Local Government and Housing Act. Payment of HRA subsidy may be made subject to conditions.

  28.  The Secretary of State or the National Assembly for Wales are given the power to calculate the level of HRA subsidy payable to an individual housing authority by:

    —  wholly or partly by formulae

    —  taking into account an assessment of:

    —  the HRA business plan

    —  performance or

    —  other matters.

  29.  The explanatory notes state that these powers "will, for example, allow the Secretary of target additional subsidy to authorities which provide better services to their tenants, perhaps by establishing arms length housing management."

  30.  UNISON questions the principle of turning the subsidy system as a "penalty/reward" framework. There is no evidence that supports the contention that "arms length housing management" is intrinsically better than the retention of direct management by the local authority.

  31.  The Housing Green Paper argued that tenants and local authorities would have choices about the future arrangements for the ownership and management of the local authority housing stock. Creating a financial framework where additional revenue streams are available to support new debt charges for only one option (ALMO) means that choice becomes illusory.


  32.  The explanatory notes are explicit in stating that "the purpose of these clauses (48 and 49) is to facilitate the transfer of council housing to registered social landlords".

  33.  Currently the Government requires local authorities to use the "set aside" capital receipt to repay outstanding debt on housing transferred. Usually the reserved receipt is sufficient to repay all outstanding debt.

  34.  In some areas the "reserved receipt" is insufficient to meet the outstanding debt liabilities leading to what is sometimes referred to as "overhanging debt". The draft Bill will enable the Secretary of State and the National Assembly for Wales to make payments to local authorities in England to enable them to meet the outstanding "overhanging debt" whether these overhanging debts arise from Public Works Loans Commissioners (PWLC) or non-PWLC loans.

  35.  The early repayment of loans (whether PWLC or non-PWLC) may also attract the payment of premiums or penalties for early repayment. The draft Bill also enables the Secretary of State or the National Assembly for Wales to include provision to meet these premiums in the payments made.

  36.  In a recent parliamentary written answer the Junior Housing Minister revealed that the Government had made significant financial provision for the payment of outstanding loan debt.

  Ms Keeble: [Holding answer Tuesday 26 March 2002] The overhanging debt payments made to date are £21 million in 1999-2000 and £256 million in 2000-01. No payments were made in 2001-02. The projected costs are £500 million in 2002-03 and £800 million in 2003-04. These are estimates and are likely to change as details of transfer proposals are finalised.

  37.  The provision of £800 million made for the financial year 2003-04, is only £42 million less than the national provision of £842 million for housing credit approvals.

  38.  UNISON does not support the proposal to give the Secretary of State the power to use public funds to meet the penalties associated with early debt redemption.

  39.  It believes that if resources are available they should be used instead to increase the level of basic credit approvals or with the arrival of the prudential framework to finance the revenue stream needed to support additional investment.

  40.  Using the resources the government was willing to make available to finance the repayment of overhanging debt in 2003-04 and the assumptions in the table in paragraph 25 it would be possible to support additional investment of more than £3 billion in 2003-04.

  41.  The votes in the Dudley and Birmingham transfer ballots mean the government's Decent Homes target is now in jeopardy. The results have reinforced the need for a level playing field when tenants determine how the decent homes standard will be met for their homes.

  42.  Significant meaning must be given to the statement made by the Secretary of State when asked what happens if tenants vote no in a stock transfer ballot.

  "It is a commitment that will be met irrespective of any decisions which are taken by tenants" House of Commons Select Committee Wednesday 16 January 2002


  43.  UNISON welcomes the publication of draft legislation that will remove rent rebates and housing (rent rebate) subsidy from the Housing Revenue Account.

  44.  UNISON has consistently opposed their inclusion within the HRA and the practice, introduced by the previous Government (from 1 April 1990) of offsetting HRA surpluses against housing (rent rebate subsidy). The cumulative effect of this accounting practice, since 1 April 1990, has been to reduce rent rebate subsidy payments to local authorities by in excess of £13 billion.

  45.  The proposals contained in the draft bill mean that rent rebates should be removed from the HRA by 1 April 2004, implementing proposals first published by the Government on 15 December 1998.


  46.  Local authorities are currently required to set-aside 75 per cent of the capital receipt from Right to Buy (RTB) sales and 50 per cent of the capital receipt from the sale of land held in the HRA.

  47.  For non-HRA capital receipts the set-aside percentage has already been reduced to zero, allowing local authorities to re-invest up to 100 per cent of capital receipts from the sale of general fund assets.

  48.  The current system for distribution of annual capital guidelines (ACGs) and basic credit approvals (BCAs) reflects the level of capital receipts held by a local authority through a mechanism called Receipts taken into Account (RTIA).

  49.  The draft Bill removes the requirement to "set aside" and replaces the system of RTIAs with new pooling arrangements for a proportion of housing capital receipts.

  50.  UNISON supports the principle of "pooling" so that "spending power can be redistributed from richer authorities to those in areas with a greater need for new housing investment" provided that "pooled receipts" are not used for any purpose other than investment in the council housing stock.


  51.  UNISON believes that the Local Government Bill offers the Government the facility to create a level playing field of investment choices to improve and maintain council tenant's homes. In this submission UNISON is offering the solutions to this simple request.

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