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£120m black hole in Treasury's plan for council housing borrowing

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The chancellor’s Budget plan to let councils borrow an extra £1bn for housebuilding has only had £880m allocated to it, LGC can reveal.

housing

housing

The Treasury has confirmed it has not earmarked £120m of the funding because it expects too few applicants from councils to raise the borrowing caps on their housing revenue accounts. 

This comes after Treasury select committee said in a report this week that raising the cap “would have no material impact on the national debt, but could result in a substantial increase in the supply of housing”.

Philip Hammond expressed his support for “lifting” housing revenue account caps for councils in “high demand areas to get them building again” in his November Budget. However, local authorities will have to bid for increases to their HRA caps and the additional borrowing will be spread over three years between 2019-20 and 2021-22.

While the government’s policy costings document said there will be “up to” £1bn available until the end of 2021-22, only £880m has been set aside.

Amount Treasury has set aside for councils to borrow for housebuilding
Year 2018-19 2019-20 2020-21 2021-22 2022-23 Total
Budget 0 £355m £265m £260m 0 £880m

The document said the £120m shortfall is based on the assumption that only “80% of the borrowing headroom will be taken up by local authorities”. It added: “The main uncertainties in this costing relate to local authorities’ behavioural response to the measure.”

The Local Government Association has repeatedly lobbied for the government to lift the borrowing cap for councils so they can build more homes.

A Treasury spokesman told LGC: “Local authorities will be able to bid up to £1bn and the money is still there for them.”

Matthew Warburton, policy adviser at the Association of Retained Council Housing, believes there is a historical precedent behind the calculations.

In 2013, the government announced plans to let councils borrow an extra £300m over two years for housing but the full allocation was not taken up.

“Councils only took £160m of it, partly because of the strings that were attached,” Mr Warburton said. “Our advice to councils is: for goodness sake bid for this money – preferably overbid.”

Chloe Fletcher, policy director at the National Federation of Arm’s-Length Management Organisations, said she was trying to encourage as many councils as possible to bid for a share of the £1bn.

“The money’s not available until 2019 anyway, so we have got time to continue our lobbying,” she said.

“The messages we are getting from MHCLG [the Ministry of Housing, Communities & Local Government] are that there are lots of different pots of money – all of which are quite small.

“If they can help councils put bids together, including to the infrastructure fund and to raise extra borrowing capacity, then we are keen to try to help people get something together.

“It’s more complicated than it should be but if I was a council that’s what I would be doing.”

On Monday Treasury select committee chair Nicky Morgan (Con) said the extra £1bn “doesn’t go far enough” and called on the government to lift the borrowing cap so councils can be “unleashed” and help build the homes the country needs.

If the government does not lift the cap for councils, it will “find it very difficult” to meet its ambition of building 300,000 homes every year by the middle of the next decade, the committee said.

In response, a Treasury spokesman said: “We have said we will monitor how local authorities respond to the additional borrowing and consider whether any further action is needed.”

Martin Tett (Con), the LGA’s housing spokesperson, told LGC it was “vital” the government did not apply conditions that might put councils off from bidding for a share of the £1bn.

“The government needs to… accept the calls of both the LGA and the cross-party Treasury committee and completely scrap the cap on the amount councils can borrow to invest in new and existing homes,” he added.

LGA chair Lord Porter (Con) said the Treasury select committee’s report was “significant recognition of our central argument about the vital role councils must play in solving our housing shortage”.

While the extra £1bn is “an encouraging first step” Lord Porter urged the Treasury to “act on the committee’s recommendation and use the upcoming final local government finance settlement to completely scrap the cap on the amount councils can borrow to build”.

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