Review of Council Housing FinanceNational or Local: a key debate

25th November 2008

Steve Partridge

Introduction

Self financing: getting to the review

Review parameters: big picture

A national system or self financing?

Self financing pilot project: summary

Way forward for Housing Capital Finance 2002

ALMOs: A new future for council housing 2005

Self financing pilot project 2006+

Reported March 2008 with the launch of the HRA Review

Tested…Options for and implications of individual LAs coming out of the subsidy system to better plan and avoid the unpredictability of a national system

One off adjustment to debt equivalent to what would have happened in the subsidy system

Technical and financial issues

Self financing: key outcomes

Two big issues emerge near the startThe future path of subsidy nationally and the impact locally

Rental surpluses build up as rents outpace allowances - not necessarily to be spent on council housing

Maintenance and investment needs are likely to outstrip allowances for major repairs and capital investment

Significantly over the longer term – perhaps around average 40%

The Subsidy and Self Financing ConundrumTo make self financing viable, need subsidy system better funded

But if the settlement could be ‘got right’…Efficiencies and potentially enormous benefits from local control

Review issues: four questions

Two big areas of debate

1. The system is under-funded Evidence for both service costs and long term major repairs costs

2. National versus local control Context of widespread ‘localism’ in public services

FUNDING NATIONAL vs LOCAL

Transition A new systemUse of RentsM&M and

major repairs

GENERAL FUND

Council house income for council housing?

Mismatch of treatment between Local HRA: ring fenced, no cross-subsidisation

National HRA: no ‘hypothecation’ and therefore no ring fence

Ring fencing rents for council housing a priority

Income

Expend-iture

HRA

OTHER CLG BUDGETS

Rents

Expend-iture

HRASUBSIDY

Addressing the issues of under-funding

Services need boosting and the stock needs investment

Over the long term, rental surpluses represent…

-2500

-2000

-1500

-1000

-500

01 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Subsidy surplus £m

?

NPV: £9.5-13billion

…40-50% increase in MRA…15-20% increase in combined M&M allowances…Opportunity for additional borrowing for investment

Big picture options

What are the barriers to greater devolution?

Borrowing and the fact of a ‘national system’

National system with

tweaked allowances, increased to

use up some of the surpluses?

National system with scope to leave to

become self financing on the basis of some criteria to be applied

Local control and abolition of the system: a

one off adjustment for

all

NATIONAL PROGRAMME LOCAL DECISIONS

National vs local

Self financingDebt revised ‘on day one’: all future rents, income and capital receipts are available for spending locally

Requires a different form of ‘control’ or regulation

More efficient because more predictable

Generates more value as resources are not restricted to central instruction

Better local engagement with tenants

NationalCentral control of resource distribution

Allows targeting of resources to where they are needed

Requires method of distribution of surpluses – would this always be controversial?

Options for the transition

Two dimensions: ‘all in one go’ or ‘a bit at a time’Really the same thing but over a different timeframe

If all in one go… a NATIONAL SETTLEMENTCould redistribute debt between authorities

Or Government takes over existing debt and reissues new borrowing (could this be lower?)

Redistribution between HRAs ‘the day before’ the settlement

If a few at a time… SELF FINANCINGWould need criteria for which

Impact on those left in the system

Questions for discussion

Has a national redistributive system had its day?

Efficiencies and benefits of a new locally based systemBUT… Loss of control in targeting of resources centrally and…Disengagement could have consequences

Order of investigationRing fencing the system: developing the mechanism?More resources: where from?A local system: comfort to Government?A mechanism to get there: no major losers?

And finally…

Two Birmingham council houses

What is the key difference between them?