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Updated: Treasury committee calls to lift borrowing cap for councils

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The borrowing cap for housing should be lifted so councils can be “unleashed” and help build the homes the country needs, according to the Treasury select committee.

Raising the cap “would have no material impact on the national debt, but could result in a substantial increase in the supply of housing”, MPs said.

Nicky Morgan

Treasury committee backs calls to lift borrowing cap for councils

Nicky Morgan

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

In the Budget, chancellor Philip Hammond announced plans to let councils borrow up to an extra £1bn for housing. However, councils will have to bid for a share of that money and the cash will be spread out over three years.

Treasury select committee chair Nicky Morgan (Con) said that “doesn’t go far enough”, especially as private developers have regularly only built every year about half the units – 150,000 – that the government wants.

She said: “The chancellor pledged to ‘fix the broken housing market’, but the government is going to find it very difficult to meet this ambition.

“The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn’t go far enough.

“The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed.”

The committee’s report said the Treasury should “at the very least… define the allocation criteria for the additional £1bn more clearly” as there are concerns the money “may not” go to areas with the greatest housing need.

Responding to the report Local Government Association chair Lord Porter (Con) said: “This is significant recognition of our central argument about the vital role councils must play in solving our housing shortage.

“Our national housing shortage is one of the most pressing issues we face and, as a nation, we have no chance of housing supply meeting demand unless councils can build again.”

Lord Porter said the Budget announcement was “an encouraging first step” but added: “We now urge 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.

He also called for councils to be able to retain 100% of the receipts from properties sold through the right-to-buy.

A Treasury spokesman said: “We are determined to increase housing supply and help get more people on the housing ladder. At Budget we announced an ambitious housing package which included lifting the Housing Revenue Account borrowing caps so Local Authorities can access up to £1bn of additional borrowing.

“We have said we will monitor how local authorities respond to the additional borrowing and consider whether any further action is needed.”

This story was updated at 16.02 on 22 January to include a response from the Treasury.

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