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ARMSTRONG ISSUES GUIDANCE ON CAPITAL RECEIPTS

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Housing minister Hilary Armstrong today set out a framework for spending the money to be released under the Capital...
Housing minister Hilary Armstrong today set out a framework for spending the money to be released under the Capital Receipts Initiative - and confirmed the government's aim of letting local voices determine how the resources should be used.

Publishing guidance on how to apply the£174m to be made available in 1997/98 and£610m in 1998/99, Ms Armstrong stressed the government's intention that resources should be used to meet local needs and priorities. Once royal assent is given, final allocations will be issued to local authorities for housing and housing-associated regeneration works. Resources will be allocated on a two-thirds need and one-third existing receipts basis.

Ms Armstrong said:

'The clear message from the past is that putting local authorities in a rigid straitjacket when they spend money benefits nobody - not central government, not local councils and, most importantly, not tenants. That is why we will be allowing local authorities maximum flexibility in deciding how to spend these much-needed resources.

'Local authorities should be imaginative and innovative in their approach. As well as plans for physical improvements and new developments, authorities will be able to use some of the resources to support housing-related regeneration works which will, for example, help to reduce crime and vandalism on estates and improve the employment prospects of tenants.'

Ms Armstrong encouraged local authorities to take advantage of opportunities to combat social exclusion and support the government's 'Welfare to Work' programme.

'This is a real opportunity to begin to tackle poor housing, poor health and run down estates. We will also look to local authorities to use the resources in a way that supports our broader initiatives on 'Welfare to Work' and combating social exclusion.'

NOTES

An illustrative list, identifying the minimum additional resources each authority might be entitled to receive under the initiative can be obtained from LGCnet. Tel 0171 833 7324/5. Subject to Parliamentary approval, the Local Government Finance (Supplementary Credits Approvals) Bill provides the enabling legislation required for the distribution of resources under the Initiative (see below). A final decision on the distribution of resources will be made as soon as the Bill receives Royal Assent.

Bill proposals

The Local Government and Housing Act 1989 prevents ministers from taking account of any set-aside capital receipts which are held by a local authority when issuing Supplementary Credit Approvals (SCAs). Under the Local Government (Supplementary Credit Approvals) Bill, ministers would be able to take account of any set-aside capital receipts which may be held by a local authority, as well as other factors such as an authority's housing need, when issuing SCAs.

Supplementary credit approvals

A credit approval is the means by which the secretary of state allows a local authority to borrow or to use its set aside capital receipts to pay for capital expenditure (ie. expenditure on assets such as buildings, land, vehicles etc).

The government intends releasing additional resources under the Capital Receipts Initiative in the form of Supplementary Credit

Approvals, rather than simply by releasing set aside capital receipts. This is because, through SCAs, they can target resources on those areas where need for investment in housing is greatest. Accordingly, one third of additional spending would be distributed according to each authority's share of eligible capital receipts, the remaining two thirds would be distributed on the basis of its assessed housing need.

Set-aside capital receipts

Under the 1989 Act, local authorities have been required to set aside a specified proportion of most types of capital receipts raised from the sale of assets (such as council houses, land, redundant buildings etc.). The proportion of receipts to be set aside is laid down in legislation for different types of assets - currently 75 per cent of the proceeds of housing assets and 50 per cent of the proceeds of the sale of other assets.

An authority's set-aside capital receipts can be used to repay debts or pay off credit arrangements. Until they are used, the set-aside capital receipts are generally held in approved investments or invested internally by being used as an alternative to short term borrowing. However if an authority is debt-free it may use its capital receipts as it

wishes. Since 1990 when the Act came into force, the sale of council housing assets has resulted in some£5bn of capital receipts being set aside by local authorities. These receipts and a proportion of the receipts from other asset sales have been used for the repayment of debt and credit arrangements where appropriate.

Copies of the guidance can be obtained from Lorraine Humphrey, DETR, Zone 2/J3, Eland House, Bressenden Place, London SW1E 5DU or from LGCnet.

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