The Treasury is to give local authorities the go-ahead to raise private money by mortgaging their housing stock, which will be put under the ownership of private companies. The extra cash will be used to improve rundown estates and build new homes for low-income families.
The plan is part of an overhaul of housing policy being prepared by the government, which wants to move housing up the political agenda. The mortgage scheme is expected to gain the backing of most local authorities and housing associations as a welcome alternative to selling off housing stock, although some left-wing councils believe private money should be kept away from public housing schemes.
Until now such plans have been blocked by the Chancellor, who feared they could have a negative effect on the government's borrowing figures. But Treasury officials have now designed a scheme under which borrowing would not affect the figures. Council houses will be placed under the control of private companies, whose finances will be separate from the councils.
But if councils default on their payments, housing could fall into the hands of commercial City banks, which would be sure to sell them or knock them down for redevelopment.
Marianne Hood, head of the Labour Housing Group, said:'This makes good sense. If you and I can go out and borrow against the value of our houses, why shouldn't local authorities?'