Review of Council Housing Finance National or Local: a key debate 25 th 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 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 start The 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 Conundrum To 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 FUNDINGNATIONAL vs LOCAL TransitionA new systemUse of Rents M&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 HRA SUBSIDY

Addressing the issues of under-funding Services need boosting and the stock needs investment Over the long term, rental surpluses represent… ? 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 PROGRAMMELOCAL DECISIONS

National vs local Self financing Debt 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 National Central 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 SETTLEMENT Could 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 FINANCING Would 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 system BUT… Loss of control in targeting of resources centrally and… Disengagement could have consequences Order of investigation Ring 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?