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Government plans to tie housing finance to a single pot of local money, suggested in the DETR recent consultation p...
Government plans to tie housing finance to a single pot of local money, suggested in the DETR recent consultation paper on capital finance, would be disastrous says housing's professional body, the Chartered Institute of Housing (CIH).

In their response to the paper, Modernising Local Government - Capital Finance, the CIH urge government to implement a more radical alternative which would allow local authorities the freedom to use their financial capabilities to address the critical state of UK housing combine public with private funds.

Government plans would make housing money, some generated from capital receipts, vulnerable to use by local authorities in other areas. Spending on housing urgently needs to deal with the backlog of improvements running at£18-20bn in council housing as well as a lack of investment in new housing. A radical approach is needed. John Perry said:

'We urge the government to reconsider its plans and look to the possibility of setting up joint pilot projects with the DETR to explore radical alternatives to allow private finance to be brought more directly into council housing.'

The CIH call for:

- firm 3-year budgets

- separate financial treatment for housing (no 'single pot')

- full release of capital receipts from council house sales

- pilots for new models such as local housing corporations

Summary of our Response

1. Public investment in housing has been stabilised by the Capital Receipts Initiative but is till only half of what it was seven years ago, at constant prices.

2. In reforming capital finance for housing, the three main problems to be tackled are the backlog of£18-20bn of work needed in council housing, the unmet demand for new housing and the wrong priorities in the use of the money that it available (notably the imbalance between bricks-and-mortar and personal subsidy).

3. Given that only about half of public housing investment is in council housing, there is a strong case for excluding housing from a review of local government capital finance; in any event, it is important that the present review does not prejudice an overall review of housing policy and how it is financed.

4. The Housing Investment Programme (HIP) mechanism could be strengthened by building in greater certainty, longer-term planning (3 years) and greater flexibility.

5. Councils should have the ability to influence the overall direction of housing resources to their area (including Housing Corporation funds) as part of a more flexible and comprehensive HIP procedure.

6. The proposed 'single pot' for local authority capital expenditure may be desirable for local government generally but would be damaging to housing investment. Housing should therefore not be included in it.

7. The new approach to Asset Management Plans is welcome but does not go far enough. Local housing authorities should have the same ability as housing associations to manage their assets properly. This could be achieved either by allowing councils to put their housing operations on a more business-like basis within the council, or allowing them to set up arms-length bodies which would operate as separate businesses, owned by the council.

8. Adequately addressing the investment backlog in housing would lead to on-going revenue savings (on day-to-day repairs) of around 20%.

9. If the government genuinely moves towards three-year spending plans at national level, it should translate these into as firm indications as possible of capital allocations for local authorities, over the same time horizon.

10. In principle councils should be able to re-use housing capital receipts at local level.

11. It is vital that the Capital Receipts Initiative continue and that the full£5bn does go into housing investment over the life of the current parliament.

12. The proposal to abolish set-aside on non-housing receipts would have damaging side-effects for housing, and compensating additions should be made to the housing programme.

13. There is potential for raising an additional£1-2bn of private finance annually for housing, but this potential will only be realised if models can be found which are attractive to councils and tenants as well as lenders.

14. Two PFI models seem to offer possibilities for renovation of council housing stock, and revenue support should be available for pilots.

15. Pilots of council-owned companies should also extend to the CIH local housing corporation model.

16. The government is urged to reconsider the case (considered but rejected in the paper) for more radical change in measures of the public finances. The main objection, which is that new vehicles would ultimately have recourse to public funds, can be fully addressed in the local housing corporation model.

The CIH would like to see these proposals come out of the comprehensive spending review.

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