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Housing reform spells rising debts

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Reform to the council house finance system could result in some local authorities being short changed and their total Treasury debt spiralling towards £25bn, it is feared.

The concern centres on the amount of historic debt owed for housing and how it is redistributed between authorities to allow councils to buy their way out of the current centralised system. 

The Local Government Association, which is campaigning to get the debt written off entirely, said it seemed implausible that the proposals would not leave some councils financially worse off.

LGA policy consultant Ruth Lucas said: “Authorities with no debt or low debt are going to have to take on debt. We cannot see how some authorities are not going to be worse off – at least in the short term.” 

Chartered Institute of Housing consultant John Perry said ministers faced “quite a juggling act” to ensure no one was worse off.

The news follows the unveiling the Reform of council housing finance consultation by housing minister John Healey.

A further worry for councils is that, according to an LGA analysis based on the consultation, the debt owed by councils could rise from £18bn to £25bn, because of “uplift calculations” for maintenance, management and major repairs.

The LGA has called for discussions with the Department for Communities & Local Government on its figures.

The LGA said it was looking into the viability of a “localised solution” for debt, rather than redistributing it across all 202 housing authorities, of which 54 are debt free.

However, Ms Lucas said there were “a handful of authorities”, for whom a localised option could potentially not work. Some councils’ notional housing debts approach £1bn, making difficult for them to pay off the debt themselves.

Westminster City Council cabinet member for housing Philippa Roe (Con) expressed fear the council would be financially worse off than under the current system.

The consultation admitted that reallocation “is likely to be contentious with debt-free and low debt authorities” but asserted that councils “should be no worse off over time.”

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